Orders of the Day — Government Resources and Accounts Bill

House of Commons, 29 February 2000.

INVESTMENT: LIMIT

Melanie Johnson (Labour, Welwyn Hatfield)

I beg to move, That the clause be read a Second time.

Betty Boothroyd (Speaker, West Bromwich West)

With this it will be convenient to discuss the following: Amendment No. 8, in clause 16, page 8, line 44, after "on", insert "upstream". Amendment No. 9, in page 8, line 44, after "business", insert "activities". Government amendments Nos. 27 and 28. Amendment No. 10, in page 9, line 6, after "provide", insert "further". Amendment No. 11, in page 9, line 7, leave out from "connection" to end and insert— with the carrying on of its business, equal to 200 per cent, of the total finance provided under subsection (1)'. Amendment No. 12, in page 9, line 9, leave out from "conditions", to the end of line 11 and insert— but may not comprise the following forms—'. Amendment No. 13, in page 9" leave out line 13 and insert— () long term equity investments in public-private partnership projects'. Amendment No. 16, in page 9, line 13, at end insert— (5) The accounts of a body to which financial assistance is provided under subsection (1)(b) or (3) shall be open to inspection of the Comptroller and Auditor General and that body shall give such explanations of those accounts as he may reasonably require.'. Amendment No. 14, in clause 17, page 9, line 14, leave out subsection (1) and insert— (1) In section 16, "upstream public-private partnerships activities" means acting as a manager in the organisation of public-private partnership projects, providing public sector organisations with expert advisory and implementation skills, providing interim finance for feasibility studies for local government public-private partnership projects and negotiating the necessary arrangements for particular public-private partnerships with the relevant government departments and the Treasury.'. Amendment No. 15, in page 9, leave out lines 34 to 36 and insert— (b) references to public-private partnership projects include those carried on outside as well as within the United Kingdom.'. Government amendments Nos. 29 to 31.

Melanie Johnson (Labour, Welwyn Hatfield)

The Government are introducing new clause 7 to provide a statutory limit to the level of investment that the Treasury can make in Partnerships UK. When the matter was discussed in Committee, I indicated that the Government had no objection in principle to the imposition of a limit, that we had been considering the matter and that we would return to it after further consideration. I also made it clear in Committee that we would ensure that our commitments were the minimum necessary to ensure the successful launch of PUK, while at the same time ensuring that they represented value for money. I also said, however, that we should not impose a restrictive limit because of the position that PUK will occupy. It is important to ensure that the company is funded to a level that will allow its continued development over time. Opposition Members will note that the limit that we have set is £100 million below the figure that was suggested in Committee by the hon. Member for Arundel and South Downs (Mr. Flight). The £400 million limit will apply to all forms of investments, including any loans or guarantees. It is a fixed, aggregate figure that is not insulated against inflation. The limit is subject to change only by means of affirmative resolution. That ensures that the procedure for changing the level of the investment in the new company, which may be proposed by this or, indeed, any other Government, will be open to consideration by the House. I should like to take this opportunity to mention that my officials consulted the National Audit Office on the matter of a limit, as requested by the right hon. Member for Haltemprice and Howden (Mr. Davis), who has just joined us. I shall speak briefly on the issues covered by the other Government amendments on PUK. Amendments Nos. 27 and 28 have been introduced to provide clarity of purpose. The redrafted clause gives a more accurate explanation of the Government's financial commitments to the new body. Partnerships UK will be a public-private partnership, and the Government will invest on a basis that ensures the best value for money. All financial provision by and on behalf of the Treasury will be on commercial terms. Amendment No. 28 also makes it clear that the moneys provided may be used in connection only with a public-private partnership business. Under that amendment, the position remains that investment may be made only in one body. Those points, along with the imposition of a limit, should allay the fears of those who are concerned that the Treasury will be providing a blank cheque. Amendments Nos. 29 to 31 are drafting amendments. They are necessary to remove from the Bill some text that is no longer required. I agreed to introduce these amendments during an exchange with the hon. Member for Arundel and South Downs in Committee.

Howard Flight (Conservative, Arundel and South Downs)

If I may put it thus, the Government have, somewhat trickily, put into a Bill about Government resource accounting the legal provisioning to set up Partnerships UK. Announcements were made by the Government last July on the scope and activities of Partnerships UK. They included putting private finance initiatives into better shape more quickly, pump-priming for feasibility studies for local authority projects, expanding the range of projects that can be undertaken and seeking to make good the public sector skills deficit in putting together private finance initiative deals. I submit, having looked at clauses 16 and 17, that what the Government intend Partnerships UK to do is unclear. The provisions go much wider than the announcements that were made last year, after considerable debate and spinning on the subject. The clauses as drafted would indeed enable the new body to step into territory that has been raised by the TUC, the CBI and the existing private finance initiative industry, which could lead to major conflicts of interest.

John Bercow (Conservative, Buckingham)

Before my hon. Friend expatiates on that point, will he confirm that he heard the Minister say that the investment limit would be increased only after "consideration" by the House? Trawl through the measure as I may, I can find no reference to "consideration"—only a reference to approval by resolution. Would my hon. Friend care to try to get the Minister out of the conundrum into which she has plunged herself?

Howard Flight (Conservative, Arundel and South Downs)

I thank my hon. Friend for his, as ever, valuable contribution. New clause 7 is almost as opaque and as lacking in clear description of its intent as the existing clauses. It seems that the Government's intent is that anything in excess of the prescribed limit of £400 million should require the affirmative resolution of both Houses—but I question whether that is what the words in the measure really add up to. Moreover, new clause 7 contains a loophole: apparently the £400 million limit applies only to subsections (1)(b) and (c) of clause 16 and not to subsection (1)(a). As subsection (1)(a) empowers the Government to put up finance for the body, how much do they intend to provide up front? As the Minister commented, the figure is £100 million less than I had suggested as a maximum for all forms of finance—as a cap to prevent things from running out of control. I welcome the acceptance of the principle that there should be a cap defined by an amount of money. However, as I have pointed out, I am somewhat doubtful as to how powerful the cap is. What is the total likely to be, including the initial expenditure under subsection 1 of clause 16?

Michael Fallon (Conservative, Sevenoaks)

When there were previous caps that could be increased—for example, in the nationalised industries—in each case the increase had to be made by a specific Bill. Throughout the 1970s and 1980s, the House was presented with measures for borrowing-power increases and so on for the nationalised industries. If the cap is to be increased, surely it would be far better if it were done by primary legislation, which would be properly considered by the House.

Howard Flight (Conservative, Arundel and South Downs)

I thank my hon. Friend for that sensible and pointed suggestion based on his prior experience. I agree that, for a cap to be meaningful, it would be better if any increase were made under primary legislation. Will the Minister say a little more about how the Government expect that money to be spent? Ministers have stated that Partnerships UK will have a balance sheet of £1 billion. A balance sheet implies the taking of deposits. Is that £1 billion target only to be the total net assets? The Government are supposed to be putting up 49 per cent., with 51 per cent. from the private sector. A £1 billion target certainly implies about £490 million from the Government. Will the Minister clarify the meaning of subsection (2)(d) of the new clause, which contains some rather strange wording? It refers to arrangements for evaluating outstanding expenditure in respect of anything done under section 16(1)(b) or (c). That means matters that are not covered by the definitions of assets, loans and guarantees in the preceding subsections. It is not clear what the Government will be required to do under that provision, nor is it clear to which type of situation it will relate—apart from those already prescribed. Will the Minister also tell us how the Government intend to account for their investments in PUK, both in the new format of the national accounts and in terms of prospective forecasts of Government spending? The crucial issue relates to what PUK will do. In that regard, I come to amendments Nos. 8 to 15, which were tabled by my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) and me. Amendments Nos. 8 and 9 are designed to limit the purposes and activities of PUK to those which the Government have described to date and which the industry, lawyers advising on such matters and the PFI team in the Treasury have defined as reasonable activities that would not cause major conflicts of interest. There is also an issue of European law. The process of procurement for private finance initiative projects is required under European law to be fair and to ensure a level playing field. If, as appears to be the Government's present intention, PUK is to have a privileged position in investing in PFI projects, that is likely to contravene European law. Amendment No. 14 defines the specific territory of upstream public-private sector activities. We have subsequently defined the term "upstream", and I shall come to that in due course; it is well understood in the PH industry and contrasts with the concept of downstream activities, which involves the management of equity investment after the financial closing of PFI deals. Although the Government do not seem to have resolved what they want PUK to do and how they want it to develop its business, there has been substantial debate about it across the industry. The conclusion has been that upstream activities make sense in the provision of support and assistance to the public sector prior to financial close. It is unclear how the key features that have been outlined will be implemented, however. The aims of PUK appear—on the face of it, at least—to involve idealistic but clashing objectives: making money as a private sector entity and helping the public sector. As described, PUK will be there to advise the public sector and to hold equity interests in projects. It will act as co-sponsor with Government Departments, but, at the same time, have a private sector business and culture. It will develop a revenue stream to finance its activities, but it is not supposed to compete with the private sector. How will those fundamental conflicts be reconciled? What do the Government expect PUK to do? The principal focus appears to be the requirement on PUK to develop a skills base, to develop the means of financing PFI businesses and to support that skills base, but those aims seem to be an afterthought. That is contrary to the sensible way of setting up a business. It is generally accepted that the PFI team in the Treasury has been a great success and played a key role in negotiating with the Treasury and related Departments to make PFI projects happen, where previously many proposals had gone round in circles. The original proposals in the Bates report envisaged the main objective of Partnerships UK as being to continue the role of the Treasury taskforce but to "PFI-ise" it. That is dramatically different from the Bill's provisions and the range of activities described subsequently. 4.30 pm The role of Partnerships UK as we believe the Government originally intended was to assist with deal flow. On 20 September 1999, the Chief Secretary to the Treasury confirmed in a speech to launch the Institute for Public Policy Research that Partnerships UK would act as a project manager for PFI deals, providing public sector organisations with expert advisory and implementation skills. He said that it would help get more PFI deals done better and more quickly. Helping deal flow and providing upstream support to public sector bodies is welcome and the Chief Secretary's approach is generally supported. It has been said that there will be a pump-priming role, in putting up finance for local authority PH feasibility studies—to be repaid when PH deals are signed off. Partnerships UK will encourage the public sector not to impose unnecessary risks on the private sector, and it will promote stability and intelligent standardisation. That is welcome in all parts of the House and throughout industry. In the early days of PFI, many deals were undeveloped owing to a lack of funds, to funds being misspent or to delayed decisions. If Partnerships UK can be a mechanism for the commercial testing of projects, that also makes sense. Historically, the key private sector concern has been that the public sector is not sufficiently incentivised to close deals efficiently. Partnerships UK will incur its own costs during negotiations. That is a positive factor and should encourage a deal-doing mentality. It is important that PUK seeks to streamline the bid process, to create a greater flow of deals. In developing the skills base, it is important to acknowledge the difficulties involved in attracting and retaining staff for Partnerships UK. The existing pool of experienced PFI professionals is relatively small, and demand for them is high. Partnerships UK should not be staffed with project and corporate finance executives with limited or no PFI experience, as that would undermine the logic of establishing PUK. The standard of public sector project managers varies. It is key to the successful development of the PFI that each spending Department should be able to develop its own skills base. How will PUK continue successfully with the two key existing roles of the Treasury team? Will it potentially serve as the negotiator with Departments for all PFI deals, or only for those in which it becomes involved? Will it play the same role in negotiating with the Treasury? How can it reasonably combine those roles with commercial roles, if it is to have them? The relationship with other Departments and public sector bodies needs considerably more thought. There will have to be a close working relationship with the Office of Government Commerce, and historically the British Government have not been particularly successful in developing relationships with non-governmental bodies. If PUK is launched without the full support of Departments most active in PFI, that will clearly put considerable risk in front of its success. We argue strongly that PUK should not be involved in the downstream side and I repeat that that seems to be the collective view of businesses and the trade union movement. The Government have not made clear whether it will be involved downstream, although the Bill would enable that to happen. There are concerns about PUK's involvement with the management and equity investment of project companies after financial close—that being the definition of downstream activities—and major conflicts of interest could arise here. How could PUK advise a public sector client on achieving the best commercial deal if it also had a commercial interest in the reverse occurring? The competitive bidding process would become compromised as PUK would participate in choosing the preferred bidder, in which it would have a future investment. PUK could, for example, recommend for selection the bidder that offered it the most favourable participation. As it will not pay the on-going tariff, it is also difficult to see how its interests in that regard would identify with those of its co-sponsor, the public sector purchaser. Confidential information gained as a shareholder or lender in one transaction could be used against the same private sector bidders in later transactions. As a participant in a project management company—either as a shareholder or a lender needing to make returns and reduce investment risks—how could it negotiate effectively against the public sector tariff payer, its co-sponsor, during the concession life on a refinancing or a variation required by the public sector? PUK's exit criteria may be different from those of the rest of the shareholders or the lenders to the concession, particularly if it needs liquidity to pay its overheads. The natural exit from a deal for PUK would be at a financial close, when it would be paid for its services in cash out of the proceeds of the project finance, in the same way as other advisers. On European requirements, the procurement process for PFI projects is governed by European law. All projects need to be advertised in the Official Journal of the European Communities and to follow certain well-established rules to ensure that the process is fair and conducted on a level playing field. It involves moving through each selection stage on the basis of an evaluation that establishes technical competence to perform the project and, later, the best price. There are usually several stages. A number of potential bidders are chosen in pre-qualification and, following interviews, three or four are invited to tender. Further negotiations usually follow. After that, a preferred bidder is chosen, which takes the process through to financial close. From advertisement in the Official Journal to financial close, the process takes between 18 months and two years to complete. Fundamental to that is the integrity of the process, which requires a clear separation between client and bidders. The client or its advisers must have no conflict of interest in the outcome, otherwise the process would be tainted and in breach of Official Journal rules and European Union law. If PUK had the opportunity to invest in the equity of the winning bidder, and played a part in its selection, there would be a major risk that such conflict would arise and it would be accused by the losers of preferring certain bidders over others during the competition. In that case, the process would be tainted and the playing field uneven. That aspect has not been discussed adequately, and the Government have not fully focused on the integrity of the competitive process. It has been argued that PUK should be a provider of last resort of equity in projects where the market is not willing to provide equity on sensible terms, and that PUK's investment guidelines might require it, on all transactions, to answer positively that the equity market had been approached and was unwilling to provide the required funding. If such equity investment were limited to those situations, it could be argued that that practice would avoid PUK crowding out the private sector, but even that slant is inappropriate because PUK will be majority-owned by the private sector and there seems little logic in private sector shareholders wanting the business to invest long term in PFI projects that no one else will touch. Even though conceptually that argument might appear to make sense to the Government, I cannot see how it can work commercially. Government amendments Nos. 27 and 28 remove references to financial assistance and grants and seek to make it clear that subscriptions to PUK will be for investments. I repeat: what sort of investments? Going back to the heart of the issue, is PUK to be essentially a skill advisory body or an investing body? The amendments leave in the Bill the ability to provide finance by way of guarantee. The Minister wrote to me following the debate in Committee to make it clear that those guarantees would be provided on the same basis as other guarantees, but I note from her response that they will appear as contingent liabilities in the supplementary statements to the consolidated fund and national loans fund accounts. The essence of our concerns about guarantees is that they are at the bottom of the page, on a contingent basis, and it will become ever more difficult to know what the real commitment is. Technically, one clearly cannot put guarantees in as capital expenditure to be depreciated, but we will stray into an area where, as Government guarantees mount, their real liabilities become more and more obscure. Our amendments Nos. 10 and 11 seek to provide an alternative cap on Government expenditure and certainly to include the expenditure under clause 16(1). We are broadly happy to accept in principle the Government's approach, with the proviso that we want to know what will be included under subsection (1). Amendments Nos. 12 and 13 seek to exclude from financial assistance guarantees and long-term equity investment in public-private partnership projects. The amendments have not been published in the form in which I tabled them, but that is their intent. As I have just said, there is no need to use the guarantee mechanism for putting up finance; it is much sounder if finance is provided up front and then appears clearly in the Government accounts. 4.45 pm The central question is what the Government intend Partnerships UK to do. The industry does not know, Parliament does not know, I am not clear, and I question whether the Minister is entirely clear. She speaks of allowing it to develop and to have sufficient flexibility in the future. The danger of that approach is that it will develop major conflicts of interest and the same bad habits as the equity bank of the 1960s. On amendment No. 16 to clause 16, it is of course correct and desirable that Partnerships UK's accounts should be open to inspection by the Comptroller and Auditor General, but what will be the accounting policies of Partnerships UK? What will be its depreciation policies? The Government have an interest in PUK at one remove and as a minority shareholder. The accounting principles of Partnerships UK and who will determine them are a crucial matter still to be resolved. Few topics could be more relevant to the issues raised by the rest of the provisions. Unless the rest of the Bill is changed as proposed, no one will have a clue what the Government's interests are in Partnerships UK or how they will account for its activities. I shall deal now with amendment No. 14. Reading through Government announcements at the time when Partnerships UK was launched, I attempted to distil its intended role as the Government perceived it. We have sought to limit the definition of Partnerships UK's role to those activities. As amendment No. 14 states, upstream public-private partnerships activities" means acting as a manager in the organisation of public-private partnership projects, providing public sector organisations with expert advisory and implementation skills, providing interim finance for feasibility studies for local government public-private partnership projects and negotiating the necessary arrangements for particular public-private partnerships with the relevant government departments and the Treasury. Those are the activities that the Government claimed when they spun the story of the setting up of Partnerships UK. The definition offered by the amendment is considerably more explicit and narrower than that provided by the Bill, which is broad and unclear and which opens the door to all sorts of conflicts of interest. The first potential conflict of interest arises from the fact that Partnerships UK exists in an idealistic sense to give good advice to public sector bodies, but it also aims to grab the business as profitably as possible for itself. The second potential conflict of interest is that Partnerships UK will have privileged access to private finance initiative deals and a privileged position in its relationships with the Treasury and Government Departments, but it is majority owned by the private sector. It is therefore in competition with a considerable number of other bodies in the PFI industry. The Bill gives it a privileged position which will be impossible to manage. It would be improper for Partnerships UK to be permitted to participate as a long-term investor in PFI equity projects. The rest of the amendments are relatively straightforward. Government amendments Nos. 29, 30 and 31 broadly cover the same territory as amendment No. 15. They try to make it clear that Partnerships UK can be involved in PFI business outside the United Kingdom. That involves less conflict than does such business in the United Kingdom, and it is clearly welcome if PUK can make money through business outside the country.

John Bercow (Conservative, Buckingham)

My hon. Friend hinted at a possible conflict between the Bill and European law. Given the unimaginable embarrassment that this Government of Europhiles would suffer if, in the context of the clause and the amendments, they faced legal action from the European Union, does he agree that it would be helpful if they published the legal advice that they received on the matter?

Howard Flight (Conservative, Arundel and South Downs)

I thank my hon. Friend for his pertinent remarks. I suspect that this Europhile Government may not even have thought of the problem, just as they had not sufficiently considered European Court of Justice issues in relation to the Financial Services and Markets Bill. I apologise if I have spent too much time in taking hon. Members through the precise arguments for the amendments, but I hope that I have made it clear that a potential problem exists unless the activities of Partnerships UK are limited to the upstream activities that I defined. The Bill is at its Report stage, yet clauses 16 and 17, which are tucked away, provide substantial powers for Partnerships UK without giving a clear definition of its activities. The Government have not resolved that. The Government have been warned by the industry, business and the trade union movement that, if the measure is left as wide as it currently stands, it will put Partnerships UK in a position in which it will face unacceptable conflicts of interest. For those reasons, our amendments try to limit and define much more precisely the activities of Partnerships UK. If there was reasonable scope for those activities to broaden in future, they could be reconsidered in further legislation. The argument that we must have the widest possible measure now to enable Partnerships UK to develop does not stand up. I urge the Government to reconsider what they want out of Partnerships UK. The other place, if not the House, will need to follow up our points and limit the role of Partnerships UK to that which is proper.

David Davis (Conservative, Haltemprice and Howden)

I want to speak briefly about three amendments in the group. First, I want to comment on the limitation that the Minister mentioned at the beginning of our proceedings. Secondly, I want to consider amendment No. 16, which is in my name and the names of the right hon. Member for Swansea, West (Mr. Williams) and the hon. Member for Newbury (Mr. Rendel). I also want to probe the Minister slightly on the philosophy that underpins the accounting for Partnerships UK. I welcome the Government's decision to accept our suggestion in Standing Committee on limitation. That is sensible. I also thank the Minister for consulting the National Audit Office on that; it was clearly worth while. I want to ask a question that may turn out to be about a technical point, but I hope that the Minister will clarify it when she winds up. Does the limitation refer to proposed new paragraphs (b) and (c) of clause 16(1), but not to subsection (1)(a), which states: The Treasury may incur expenditure in respect of the establishment of a body for the purpose of carrying on public-private partnership business? That opens up the option of creating a dowry. I do not think that that was the intention; I suspect that it is just the way in which the wording is made rather general. But I should like to hear that that is the Government's view. There may be a need for amendment by the Government in the other place. The second issue is raised by amendment No. 16, in my name and the names of two of my colleagues on the Public Accounts Committee, the right hon. Member for Swansea, West and the hon. Member for Newbury. It says: The accounts of a body to which financial assistance is provided under subsection (1)(b) or (3) shall be open to inspection of the Comptroller and Auditor General and that body shall give such explanations of those accounts as he may reasonably require. The amendment is designed to remedy an omission from the Bill. It provides for the Comptroller and Auditor General's access to Partnerships UK. The Government intend to establish the body as a limited company to exercise a key role in developing the private finance initiative. Partnerships UK will take decisions having a wide impact on the use of public money. The Treasury will be able to use public money to fund it. It will take on functions that are currently performed by a taskforce within the Treasury, whose work is currently open to scrutiny by the Committee of Public Accounts through the Comptroller and Auditor General's current statutory access rights.

Oliver Letwin (Conservative, West Dorset)

Does my right hon. Friend agree that this is an interesting test case of whether the Government intend to constrict the applicability of the National Audit Office and the Comptroller and Auditor General, since, after all, the body in question is one that they are setting up de novo, and they have claimed repeatedly that they have tried to allow all new bodies to be within the purview of the Comptroller and Auditor General?

David Davis (Conservative, Haltemprice and Howden)

I do not agree with my hon. Friend. As will be clear in a second, it is a test case of something else, of whether or not we can have in statute, rather than by Executive promise, the rights that apply. The Chief Secretary, giving evidence to the Committee of Public Accounts last month, acknowledged the important role of the Committee in scrutinising the apportionment and transfer of risk under public-private partnerships and private finance initiatives. He gave a commitment that the Committee would have full scrutiny of and oversight over public money paid to Partnerships UK, as well as of money going into projects for which Partnerships UK will be responsible. That commitment is welcome; it was unanimously welcomed in the Committee. The amendment would simply secure in statute the mechanism for providing the Committee with the oversight role, by giving the Comptroller and Auditor General the necessary access powers to obtain information to inform the Committee.

Oliver Letwin (Conservative, West Dorset)

I accept my right hon. Friend's correction. It is encouraging to many of us to hear of that commitment. However, does he agree that if the Government are reluctant to accept the PAC's amendment it would suggest that that commitment may be temporary?

David Davis (Conservative, Haltemprice and Howden)

I am perhaps more generous than my hon. Friend in my judgment of the Government. The problem here is not so much that the commitment of today's Government may be temporary; it concerns the commitment of some future Government. All Bills set the framework for the Government and Parliament in the future.

Nigel Griffiths (Labour, Edinburgh South)

The right hon. Gentleman speaks with much knowledge of the position inherited by the present Government, when, against all the appeals from the Public Accounts Committee, none of the outside arms-length agencies that were set up were required to be vetted by the National Audit Office. But I know that the right hon. Gentleman supports me and the rest of the Committee in applauding what the present Government have done to ensure that all arms-length bodies have been included since the last election.

David Davis (Conservative, Haltemprice and Howden)

Not quite all—19 out of 21. If the hon. Gentleman had been in the Chamber the other day he would have known that I tabled an amendment on behalf of the National Audit Office about the Financial Services Authority. That was not accepted. So the matter is not as clear-cut as he suggests. The point that the hon. Gentleman perhaps wanted to make was that over the decades from the 1960s onwards Governments have slipped by this particular problem. It is one that should be straightened out for ever now. However, let me return to my generous tone, which was to accept and applaud the Chief Secretary's commitment. It should properly be put into statute, for good reason. The private finance initiative is still new; it is still finding its feet; we are still discovering its weaknesses and its strengths. In the development of such a policy, one that is common to both sides of the House, the gains from value for money studies are enormous. They relate not just to the particular body or project that is being considered at any one time, but to all the projects that may benefit from them in the future. The Public Accounts Committee has already published a report demonstrating the lessons learned from four PFI studies. Considerable leverage is given by the ability to scrutinise and to report. 5 pm Of course, another important scrutiny function relates properly to Parliament, and should not be a discretionary consideration for Government. Parliament's rights are involved here, not the Government's wishes or the Government's good will. The amendment is offered not in any spirit of conflict, but because I—along with the other Members in whose names it is tabled, and others—believe that Parliament's rights should be recognised. The House is being asked to approve the statutory funding of Partnerships UK; the amendment would secure in statute the House's right to scrutinise the use to which that money is put. May I ask the Minister another question about accounting for Partnerships UK? There is a philosophical point that we did not have time to consider in Committee, but which needs to be understood. The private finance initiative is, in my view, worth while, and I applaud the Government's intention to increase its use. It will give us better management, risk transfer, and a valuable weapon for the pursuit of output-oriented government. But how we account for the private finance initiative, or the private-public partnership, is critical, because it may lead to a perverse incentive in the way in which the PFI is used—an incentive driven by the way in which we account for it on the Government's balance sheet. Traditionally, decisions about whether to put an item on a company's balance sheet are based on how the risk is allocated—whether it falls on the project or on the company. There is a good reason for that: the interest of those who are most concerned with the balance sheet. Both the company's shareholders and its creditors have an interest in the financial risk that afflicts it. The taxpayer's interest in the Government's accounts is rather different. Most taxpayers do not expect the Government to go bankrupt tomorrow; neither do most of their creditors. The Government may be a late payer, but they are not going to go bankrupt. The taxpayer's interest is in the future taxation incurred by Government's decisions. That is why I want to know how the Minister expects Partnerships UK to be accounted for, in the context of the Government's overall accounts and the balance sheet that the Comptroller and Auditor General will be required to audit at some time in the future. I think it proper for capital accounting for the PFI—the liability that goes on to the Government's balance sheet—to reflect, irrespective of risk transfer, the stream of cash that taxpayers will have to fund in the future. How does the Minister expect that to be dealt with? It is, 1 think, one of the key issues in relation to whether the PFI is treated properly. If it is not treated properly, future Governments will be tempted to try to minimise the apparent liabilities on the balance sheet by, as it were, having public services on the never-never, and none of us would approve of that.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I think the House is grateful to the hon. Member for Arundel and South Downs (Mr. Flight) and the right hon. Member for Haltemprice and Howden (Mr. Davis) for their analysis of the amendments and the Government's proposition. The Committee was also grateful for their analysis of Partnerships UK. The Liberal Democrats support almost all that they have said today; we also support the Government's new clause 7, which deals with expenditure limits. The Minister suggested in Committee that the Government would table such a measure, and they have delivered on that promise, for which hon. Members—including those who were members of the Committee—are grateful.

Oliver Letwin (Conservative, West Dorset)

Does the hon. Gentleman agree that there is the lacuna that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) pointed out: because subsection (1)(a) is not covered, the Government could under the Bill put in, for example, £1,000 million at the start and not be limited by the £400 million?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am grateful to the hon. Gentleman. He has anticipated what I was about to say. With that exception, we welcome the new clause. I hope that the Minister will say that that was an oversight and that the Government will fill that lacuna in the other place. I hope that the Minister will talk a little more about the philosophy behind the Government adopting the expenditure limit. The point was not touched on in Committee. Although an expenditure limit could prevent abuse of the Government guarantee for Partnerships UK and ensure that there is a level playing field for other companies, there is an alternative to such a limit. The Government could have ensured that the constitution setting up Partnerships UK had a no bail-out clause saying that they would not give it any guarantees after the initial funding, and would in no way come to its rescue if it encountered difficulties. I would be interested if the Minister said why the Government did not choose that route, which is perfectly legitimate. Other countries have used it for corporations that have been set up by statute. The Liberal Democrats have examined it in other areas such as London Underground and the Post Office. It would perhaps have been one of the most appropriate ways to look at innovation in public sector finance and could have brought many of the benefits that the Government seek from setting up Partnerships UK, without having to have the expenditure limit. I make it clear: we are not against the expenditure limit approach. We would like to hear why the Government have gone down that route and not another. The hon. Member for Arundel and South Downs spent some time talking about the role of Partnerships UK and rightly sought from the Government clarification of what activities the body will undertake. I hope that the Minister will expand on that because many of us have worries that they have no clear direction for the body. Perhaps they will want it to take over more and more of the capital management of the public sector, but with no clear criteria about the sort of projects that will be most appropriate for Partnerships UK. That is one of the problems with the private finance initiative. It is welcome in many areas of the public sector and has brought many benefits. Many projects have gone ahead that otherwise would not have done. Many lessons and skills have been learned by public sector managers, particularly on procurement. It has clearly brought many benefits, but, as we all know, there have been many examples of PFI projects having problems, where assets have been undervalued and money has disappeared. That is why some of us are concerned that Partnerships UK is being created without any clear framework for its activities. Although it may be the right approach, we do not feel that the Government are setting down the guidelines that are needed at this early stage. A few weeks ago, members of the Sub-Committee of the Select Committee on the Treasury took evidence from various advisers on the PFI and looked at where it had been successful and where it had not. It was clear that there were a significant number of successful PFI projects but, equally, a range where the PFI was not so appropriate and had not worked so well. That tended to be where the body had many different parts—say, a large hospital—a service there was being PFIed, but was used by a number of different people. The transaction costs in performing that re-arrangement proved to be not only very high, very complicated and time consuming, but did not deliver good value for money. In their remarks to the Committee, the specialist advisers made it clear that the PFI could generally be characterised as a case of learning on the job and of trial by error. That is not a good way of trying to discover the best way of maximising value for taxpayers' money and of ensuring that capital projects are completed in the most efficient manner. It is about time that the Treasury—perhaps using outside advisers, perhaps from academia—analysed rather more intelligently the most appropriate cases for use of the PFI. If public sector managers operate a PFI project, they will have the benefit of cheaper capital and—potentially, in some cases—of lower transaction costs. However, those gains have to be set against the efficiencies that could be gained in many spheres by private sector management. There is therefore a trade-off in deciding who is best able to operate parts of a PFI project. Moreover, it seems almost self-evident that it is possible to analyse the spheres in which such a trade-off will work. I hope that Partnerships UK will not have to learn by experience, and that, in a few years, we shall not have to contemplate a series of failures and projects in which money has been wasted.

David Davis (Conservative, Haltemprice and Howden)

Some of the issues that the hon. Gentleman has raised were addressed in the Public Accounts Committee's report on the PFI. However, rather than focusing on the trade-offs that he has described, the report made it clear that design of PFI projects is critical to their success. The report also made it clear that, in the public sector, understanding of the separation of risk is very primitive indeed. Under the previous Government, the pricing mechanism used in road projects, for example, served to increase risk, making projects more expensive than they needed to be. There is, therefore, much to be gained in addressing the issue of project design. Moreover, in relation to project design, Partnerships UK is a good development. However, the report also reinforces the point that value for money studies not only demonstrate the good and bad aspects of a project, but provide lessons to be learned for the future.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I certainly agree with the right hon. Gentleman on value for money studies, which would be promoted by his amendment No. 16, and which we must ensure are continued in all PFI projects. I do not think that he and I disagree on that. Liberal Democrat Members believe, for many of the reasons that he has outlined, that the PFI could be very useful in many spheres. His comments on project design also reinforce my previous comments. Although some projects can be designed so that the private sector is readily able to assist in improving efficiency, it is very difficult to see how other projects—I gave an example of one earlier—can be designed to ensure that we receive best value for money. I therefore hope that the Minister will say a little more—as she was pressed to do earlier by the hon. Member for Arundel and South Downs—on the activities of Partnerships UK. Amendment No. 16 was tabled by the right hon. Member for Haltemprice and Howden and other members of the Public Accounts Committee, and is not, as the hon. Member for Arundel and South Downs said, a Liberal Democrat amendment. However, Liberal Democrat Members are certainly happy to support it and, in many ways, wish that we had got there first. Throughout our proceedings in Committee, the Government demonstrated a surprising unwillingness to expand the role of the National Audit Office. In Committee, although Ministers described their interest in and support for expanding that role, and even boasted about their record in doing so, when we made specific proposals, they moved away. We are now debating another specific proposal, and it will be interesting to see whether the Minister goes down the same road. In Committee, she made it clear that she was not attracted by such an amendment. She said that Partnerships UK would be a risk-taking private sector body, with the majority of its members being private sector investors and that those were not the normal conditions under which a body would be inspected by a public sector audit body.

Oliver Letwin (Conservative, West Dorset)

Does the hon. Gentleman agree that, in the light of the interesting information that we have received from my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the Chairman of the Public Accounts Committee, that there has been a Damascene conversion in the Treasury and the Chief Secretary has made a commitment to allow the Comptroller and Auditor General in, it is extraordinary that the Government should apparently resist an amendment that merely locks in that commitment?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

During the evening we may find that the hon. Gentleman anticipates what I was about to say on a number of occasions. The Chief Secretary has made that commitment. It follows that Ministers should accept amendment No. 16.

Oliver Letwin (Conservative, West Dorset)

I promise that I shall not pre-empt the hon. Gentleman this time, because I want to ask him a question. Would he care to speculate on why there might be such a discrepancy between that commitment and a willingness or otherwise to accept the clause?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I was not about to go on to that, but I shall answer the hon. Gentleman. Perhaps the reason is that the Government are concerned about setting a precedent, because Parliament would then be entitled to say that many other corporations and trading companies with public sector involvement should be overseen by the National Audit Office. I suspect that that lies behind the Government's possible opposition to amendment No. 16, but we shall see. Another reason why the Government should deliver on the Chief Secretary's commitment is that such public bodies, created by statute by the House of Commons, ought to be audited by the National Audit Office. Partnerships UK would not exist if statute did not create it. It is not a private company. That creates a prima facie case for National Audit Office involvement. We know from new clause 7 that public money will be involved. Moreover, Partnerships UK will be a key tool of public policy. The Government want to develop the private finance initiative and public-private partnerships. There is no disagreement about that basic aim. Elsewhere in the Bill, the Government say that a body should be under the jurisdiction of the National Audit Office only if its role could be carried out by a Government Department. A Department clearly is undertaking the role of Partnerships UK. The Treasury set up a taskforce, which started work soon after the Government came to office. Yet again, by the Government's criteria, Partnerships UK ought to be under the institutional jurisdiction of the Comptroller and Auditor General.

Howard Flight (Conservative, Arundel and South Downs)

The hon. Gentleman has just raised the nub of the matter: is Partnerships UK going to take on the Treasury taskforce's role, as has been advertised, or is it going to do something entirely different? The Bill empowers it to do something totally different that may even be harmful to the present role that the Treasury taskforce has carried out well.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman makes a fair point. I may be naive in accepting that the Government were going to do what they had said elsewhere that they intended to do. It is the Government's stated intention that the responsibilities of the Treasury taskforce will be taken on by Partnerships UK, but the hon. Gentleman is right to say that, given the drafting of the Bill, Partnerships UK could go much wider. The point made in amendment No. 16 is that the body should come within the scope of the National Audit Office. The Liberal Democrats want the Government to deliver fully on their commitment. We want them to ensure that all public money that goes to Partnerships UK is properly audited. We want to make sure that the commitment given by the Chief Secretary to the Treasury is delivered and we believe that the best way to do that is for amendment No.16 to be agreed to. Finally, let me say a word in favour of public sector managers. When we debate private finance initiatives and Partnerships UK, we are often left with the feeling that right hon. and hon. Members believe that civil servants cannot procure capital goods or get good value for taxpayers' money. In reality, over many decades they have performed those functions very well. Indeed, in many areas they are still charged with the responsibility for capital procurement for the public sector. Whether or not Partnerships UK develops and takes on more of that work, many public sector managers will retain that responsibility. I hope that, in establishing Partnerships UK, the Government will ensure that public sector managers are able to learn from Partnerships UK, and that they are not simply able to get advice from Partnerships UK, but are brought in for their skills and expertise as they will still be in charge of much of the capital spending in the public sector.

David Davis (Conservative, Haltemprice and Howden)

I applaud the hon. Gentleman's comment about public sector managers and draw attention to one factor that we in Britain take entirely for granted—the fact that more than 99 per cent. of our public sector managers are totally honest. We cannot take that for granted in respect of everything that happens on behalf of the Government. When something goes wrong, it is often at the interface between the public and private sectors. We are increasing precisely that possibility by going down the PHI route—not wrongly—and we have to be aware of it.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The right hon. Gentleman is absolutely right. The Government should accept his amendment so that the public-private partnership can be developed with the probity that we have come to expect from our civil servants.

Michael Spicer (Conservative, West Worcestershire)

What worries me about new clause 7, and particularly the way in which the Minister spoke to it, is that the £400 million cap is the wrong cap. It is focused on what might broadly be called the operating costs of the monopoly organisation that has been set up to administer the public sector element of the PFI scheme. However, it does not restrict or contain the public moneys that are going into the PFI and that really should worry right hon. and hon. Members in the context of the Bill and the proposed new clause. The Minister gave the impression that the new clause provided a real cap on heavy spending by the public sector on the PFI. That is quite manifestly not the case. As the provision is spurious and there is no such cap, there are all sorts of unfortunate consequences, some of which have been referred to by my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis). For instance, more and more of a fudge is emerging between capital and current spending. The expansion of PH in a totally unconstrained way is resulting in the breaking of the Government's own golden rules. Borrowing is being conducted through spurious capital expenditure, unconstrained through the PFI, which actually turns out to be current expenditure. That puts a horse and cart through the Government's self-proclaimed golden rules. More generally, this kind of mishmash of Government and private spending in an uncontrolled way will be combined with the phoney privatisation schemes that are beginning to emerge—the Post Office being one example. We shall have to wait for the result of the mayoral contest to find out whether the underground will be another. Less and less control is being exerted and certainly, as my right hon. Friend said, totally unaccountable control is being exerted over public spending, particularly capital expenditure. That is increasingly worrying. The Select Committee on the Treasury interviewed the Governor of the Bank of England this morning. There was discussion about the fact that, contrary to the public perception and the Government's propaganda, there is reason to believe that public spending is beginning to get out of control. A report published yesterday by the Lombard Street research group showed clearly that the growth of public spending is taking off, and that it is matched by falling growth in tax receipts. Everyone thought that the deficit gap had been solved, thanks to the sound finances handed over by the previous Administration. It had been, for a while, especially when the Government took over the previous Administration's tight expenditure plans. However, there is now the real possibility of laxity in this country's fiscal management. That would have all sorts of consequences, as the Select Committee discussed this morning. One of the reasons why our interest rates are on their way up is that there is an anticipation that public spending is getting out of control, as a result of the ways that the Government have found to get around their own rules and public expenditure constraints. There is a clear need for capping and constraining public expenditure. New clause 7 is spurious. Its impression of great control and probity by an open Government contrasts with what is really going on. The Bill is part of a fudge that disguises loss of clarity and accountability in the Government's conduct of the public finances, as my right hon. Friend the Member for Haltemprice and Howden rightly said. Many issues arise connected with risk, for example. There is a contrast between what the Bill proposes and the way that risk is managed in the private sector. The Government are pretending to have achieved a match between private finance and public finance, and between risk and reward, in a way that is satisfactory to the private sector. However, their fudge means that public expenditure is gradually getting out of control. That is a worrying trend.

David Ruffley (Conservative, Bury St Edmunds)

I wish to draw particular attention to amendments Nos. 8 and 9, at whose heart is the critical distinction between upstream and downstream activities. Upstream activities are defined in a later amendment as a set of activities that provide for support and assistance to the public sector prior to the financial close. Downstream activities are defined elsewhere as involvement in the project's management and equity investment after that close. As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) said, it is the inclusion in the Bill of a role in downstream activity for PUK that most troubles Opposition Members, City practitioners and commentators. That worry was noted when details of PUK were leaked to the newspapers last summer and aroused much confusion. The more one studies the Bill, the more one sees that many details are not covered. It was also clear in Committee that there were lots of loose ends. The devil really is in the detail. There are conflicts that have not been resolved thus far because of insufficient understanding of the critical difference between upstream and downstream activities. 5.30 pm My hon. Friend correctly observed that with regard to downstream activity, a body advises the public sector on how to get the best deal while being able to take an equity stake by way of remuneration for its involvement in the deal. That equity stake will involve it in trying to get the best deal for itself as a shareholder. That inherent structural conflict is built into these provisions. PUK will seek to develop a revenue stream to finance its activities, but we are being told that that will not and should not crowd out private sector activity. That is clearly another conflict. The Minister will probably tell us a great deal about Ministers' consultation with the private sector before drafting the Bill and how the Government listened to Opposition views in Committee. They may have listened and they may have consulted, but they have not come to the proper conclusions. It is to some of the outstanding points that have not been tackled that I would like to turn my attention. I do not think that anyone has a problem with upstream activities. They are typically undertaken by the Treasury taskforce—and a very good job it did in the main.

Oliver Letwin (Conservative, West Dorset)

Does my hon. Friend agree that if the upstream activities constitute the main burden of the Government's case, clause 16(1)(a) should have been captured by the £400 million limit? It cannot conceivably be the case that the upstream activities would require to have more than £400 million spent on them all told, including the initial investment.

David Ruffley (Conservative, Bury St Edmunds)

Given my hon. Friend's premise, he is of course right, but he misunderstands me if he believes that I think that the burden of the Government's case is the importance that they attach to upstream activities. The importance that they attach to downstream activities is my concern. However, given his premise, he is right in making that logical and typically powerful point.

Oliver Letwin (Conservative, West Dorset)

Following his own logic, would my hon. Friend then agree that the fact that clause 16(1)(a) has been omitted from the £400 million limit is virtually proof that the Government intend the body to have a great deal to do on the downstream side?

David Ruffley (Conservative, Bury St Edmunds)

My hon. Friend has it. That is exactly the point of my remarks further downstream, if I may make such a pun. It is at the forefront of Conservative Members' concerns. Let us remember what upstream activity is and why it is important. To demonstrate what a reasonable chap I am, I will gladly pray in aid the view of the Chief Secretary to the Treasury. In a speech to the Institute for Public Policy Research on 20 September 1999, he suggested that the importance of PUK was in helping to get more PFI deals done better and quickly. We would all like that. It is what the Treasury taskforce was dedicated to ensuring, so there is no problem thus far. PUK will also encourage the public sector not to impose unnecessary risks on the private sector. That is another of the Government's stated aims. We have no problems with that. It is also implicit in the logic of the role carved out for PUK's upstream activity that it should promote greater standardisation of contracts. That is most important, as is the fact that PUK should try to streamline the bidding process so as to encourage greater deal flow. However, when we try to find out what the measure says about upstream activity—the subject of amendment No. 8—we seek in vain. We cannot discover ways in which that pre-closing and troubleshooting advice could be delivered. We have what is technically a private sector company, which will employ staff who represent a better skill base; that is what we are asked to believe. The company will be better than the embodied form of the Treasury taskforce. However, concerns remain as to the kind of staff who will be attracted to PUK and retained. The pool of experienced PFI professionals is relatively small and the demand for their services in the private sector is high. Will the Minister tell us what is being done to recruit and retain staff who will deliver high-quality, upstream activity advice? As one considers the significance of upstream activity, another question automatically leaps out. What relationship will PUK have with other Departments? Those people who have wandered the corridors of Whitehall in a previous life will understand that some Departments are not awfully good at interacting with non-governmental bodies. Will the Minister tell us what mechanisms—if any—the Government have put in place to incentivise Departments to work efficiently, promptly and in a co-operative spirit with PUK when it has been set up? I cannot close my remarks on the importance of upstream activity—the subject of amendment No. 8—without adverting to the points in other amendments about downstream activity to which my hon. Friend the Member for West Dorset (Mr. Letwin) referred a few moments ago. The Opposition regard downstream activity as dangerous. My hon. Friend the Member for West Worcestershire (Sir M. Spicer) alighted on that fact. Let us consider briefly why the involvement of PUK in downstream activity—the management of investment and the participation in equity investment during a PFI or public-private partnership deal—could be problematic. What conflicts of interest might arise if PUK indulged in the downstream activity of which we disapprove? PUK will be advising public sector clients on how to achieve the best commercial deal. However, at the same time, it will, in some cases, have an equity stake in the deal. The commercial interests in securing the best return on that stake would be diametrically opposed to the interests of the public sector client to whom PUK was giving the advice in the first place. The competitive bidding process could be compromised if PUK participated in choosing a preferred bidder in which it had a future investment interest. In other words, PUK could recommended a bidder to be selected if it offered the most favourable participation to PUK.

Charles Wardle (Conservative, Bexhill and Battle)

Is not everything that my hon. Friend says in support of his amendments and about the pitfalls likely to be found in downstream activities a powerful argument in support of amendment No. 16, which was tabled by my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) and relates to the Comptroller and Auditor General's right of access?

David Ruffley (Conservative, Bury St Edmunds)

I concur with my hon. Friend's assessment that our right hon. Friend, who is Chairman of the Public Accounts Committee, has alighted on an important point. That is why he tabled an amendment to act as an important set of belt and braces if we cannot get rid of downstream activity. I fear that, despite the power of our arguments, we may not succeed in doing that today. However, that amendment would ensure that there would be proper accounting of the PUK's spending and scrutiny by the National Audit Office.

Oliver Letwin (Conservative, West Dorset)

Even if we do not succeed today, does my hon. Friend not agree that it is almost certain that, if the Government continue to resist such amendments, the other place will ensure that they are not allowed to continue with their proposals for downstream activities?

David Ruffley (Conservative, Bury St Edmunds)

I stand corrected by my hon. Friend. Perhaps, I am too much of a pessimist. I heard what he said, and I now share his optimism that the Government will listen to the objections that we are making in a reasoned and sensible spirit about the risks posed by the downstream activity envisaged in the Government's new clause. I return to the list of potential conflicts of interest. Confidential information that PUK gains as a shareholder or lender in one transaction could be used against other private sector bidders in later transactions.

Oliver Letwin (Conservative, West Dorset)

I am sorry to interrupt my hon. Friend again, but I have just caught up with his lightning intellect and realised what he was saying. Does he really mean what he said? Is it not likely that the Government will not so much listen as hear an enormous shout from the other place? Eventually, they will be compelled to listen.

David Ruffley (Conservative, Bury St Edmunds)

I hope that the Government will be compelled to listen to the points that we have made, and that the other place will no doubt make, about the dangers of downstream activity. My hon. Friend is right in that regard. We have a further concern about downstream activity. If PUK is a participant in a project company either as a shareholder or a lender and needs to make returns and reduce investment risk, how will it negotiate effectively during the life of a deal against the public sector tariff payer that is its co-sponsor if that deal has to be renegotiated? For example, it might need to be re-financed and, in those circumstances, there will be a clear conflict of interest. We are not totally clear from the Bill what price PUK will charge for its services. It has been observed in many quarters outside the House that a natural exit from a deal for PUK would be at the financial close, when it would be paid for its services in cash from the proceeds of the project, financed in the same way as other advisers. If that route were followed, services could be clearly priced. Other advisers could see how much PUK was charging, which would result in benefits from more competition. My hon. Friend the Member for Bexhill and Battle (Mr. Wardle) observed that we are entering the realm of monopoly providers, when we want more competition. 5.45 pm If remuneration were paid up front, it would increase PUK's liquidity and avoid the need to scramble for sweat equity, which would be unattractive to many parties—not least bid sponsors and the public at large in the shape of taxpayers. My hon. Friend the Member for Buckingham (Mr. Bercow), in an intervention on my hon. Friend the Member for Arundel and South Downs, referred to the way in which European law impacts on the way that PFI procurement is undertaken in the European Union. All projects must be advertised in the Official Journal of the European Commission and follow well-established rules, to ensure that the process is deemed fair and conducted on a level playing field. The process, which is lengthy, begins by establishing the technical competence of bidders and goes on to examine whether best value and best price have been secured. Pre-qualification involves a number of potential bidders from a wide field. Following the third or fourth round of beauty contests, an average of three or four bidders are invited formally to tender. Thereafter, further negotiations are conducted, normally resulting in two bidders being invited to put their best and final offers. Then a preferred bidder is chosen, which should take the process to final closure. That legal—and legalistic—process can take one and a half to two years to complete. I should like to hear from the Minister whether the integrity of that process is compromised in any way by the kind of conflict of interest that I and others of my hon. Friends have outlined in relation to downstream activity. It is widely suggested by eminent legal practitioners in the City of London that, under that regime, there should always be a clear separation between the client and bidder in the interests of fairness, transparency and integrity. The client and its advisers—PUK in this example—should have no conflict of interest in the outcome, otherwise the process could be tainted and possibly in breach of EU law. I repeat the question posed by my hon. Friend the Member for Buckingham. What legal advice have Treasury Ministers received in relation to conflicts of interest compromising or breaching EU law? If the Minister will not publish that advice, perhaps she will tell us whether she was given any in the first place or thought it prudent to request such before introducing the Bill. I think that I saw rubric to the effect that the Bill is deemed to accord with the principles of the European convention on human rights. Does it accord with the principles of EU law, other than the ECHR? I should like to go on—

Thomas McAvoy (Labour/Co-operative, Glasgow Rutherglen)

The hon. Gentleman is going on and on.

David Ruffley (Conservative, Bury St Edmunds)

If the hon. Gentleman stops muttering and wants to stand up to engage in the debate I shall happily give way, but I see from his rather strange expression that that is probably beyond him. The Government pray in aid various arguments to the effect that they are well intentioned, that none of those conflicts of interest will conceivably come to pass and that one should not be concerned about breaches of law, conflicts of interest or double dealing. But it is worth reminding ourselves of their professed intent when they introduced the proposals. We were told that PUK would recover the cost of financing any public-private partnership feasibility studies by direct reimbursement from the Treasury, that the Treasury would be reimbursed when the projects got ahead and that it would not always or even necessarily be the case that PUK would have to take an equity stake to recover its costs. We were also informed that it saw its role as merely supporting Departments, acting as a co-sponsor with them and smoothing the passage of PPP projects that it had worked up in co-operation with public sector clients. I am afraid that that is not good enough because the Government clearly want PUK to be a significant pump primer and, as has already been observed, the figure of £0.4 billion should make us all pause and scrutinise the thinking behind the creation of PUK. We are in the realm of empire building and the Bill does not spell out exactly what is going on. I refer to comments by Sir Stephen Robson and Mr. Adrian Montague, the chief executive of the Treasury taskforce. Let me quote Mr. Montague on why there will not be any conflicts of interest that should bother anyone. He said: in designing the capital structure we won't allow PUK to be taken hostage by anyone on the private sector side of the fence in order to gain unfair preference. As for the worry that PUK will do down the public sector to achieve a better return for itself, he said: the one thing that is not understood is that PUK will have a single client—the public sector. The suggestion is that If PUK does a single deal, which the public sector regards as gouging, or exploiting a conflict of interest, it is dead. No one would ever deal with it again and that it will have to be terribly careful as Its goodwill is single source and precarious. We are being asked to rely on the suggestion that we do not need to write any of that down and do not need to worry about conflicts of interest because they will not happen as PUK will be so sensitive to commercial and City opinion that it would not dream of gouging or doing a preferential deal when an equity stakeholder. However, in the same breath Mr. Montague said: it is not enough to rely on the underlying understanding. We will have to have rules in place to prevent the evil that he identified and that we have been identifying. I have looked in vain in the Bill and in Committee proceedings for the rules to prevent gouging or preferential deals arising from a conflict of interest. There are no answers to those questions. Guarantees go to the heart of the Government's attitude to the PFI, which is why our amendment No. 12 would remove references to PUK making guarantees. We believe that giving guarantees in any particular deal and using taxpayers' money so to do would undermine the demand that private sector contractors strive to achieve the very best efficiencies, savings and cost-effectiveness under a PFI or PPP deal. The problem is that if a bail-out occurred during a deal as a result of a guarantee being given, that would look like nothing but shadowy, off-balance-sheet public spending. That is all that those guarantees would amount to and, for that reason, our amendment is very important. The PFI and private sector contractors enjoying the benefit of guarantees that could run to many millions of pounds—if the Government amendments and new clauses are anything to go by—should worry us all because that is not in the spirit of the PFI and represents a poor deal for the British taxpayer.

David Rendel (Liberal Democrat, Newbury)

This will not be my main contribution—amendments and new clauses in my name and those of other Opposition Members appear in every subsequent group—but as my name is attached to amendment No. 16, I am delighted to speak to it briefly. I strongly support the right hon. Member for Haltemprice and Howden (Mr. Davis), the Chairman of the Public Accounts Committee, who said that—for some reason that is not fully explained and which I want to explore—the Government appear to be unwilling to put in statute their stated intention to give the National Audit Office and the Comptroller and Auditor General the right to study the accounts of Partnerships UK to make sure that its finances are properly ordered and that it is using the money granted to it by Parliament for proper purposes. The Government were prepared to give that commitment, but appear unwilling to include it in the Bill. That seems odd, particularly in the light of a perhaps slightly unfortunate party political remark made by the hon. Member for Edinburgh, South (Mr. Griffiths). I am sorry that he is no longer present as he seemed to suggest that the blame for the NAO's lack of access lay with the Conservative party, and the previous Conservative Government in particular. He rightly praised his Government for the number of new bodies that they have established over which the Comptroller and Auditor General has full audit rights. I echo that praise and, although the figure may not be quite 100 per cent., most have him in charge of their audit. We all welcome that. 6 pm If the Government reject the amendment, we will lack a safeguard against any changes being made in future. Of course, we accept that the Government intend the amendment's effect to come into play, but if the amendment is not made, a future Government may make a different decision. Indeed, this Government may make a different decision in future, although presumably they do not, at present, intend to do so. The hon. Member for Edinburgh, South made it clear that he was worried about what might happen if, God forbid, we ever had a Conservative Government in charge of the country again. If that is a worry for him, I hope that he will be supporting the amendment wholeheartedly, in line with his support for the Public Accounts Committee's report, which suggests that the amendment should be made so that the Government's commitment would be in statute. The Government said that the commitment should not be in statute because that was not the Bill's original purpose. They have used that argument in a number of instances during discussions on the Bill. It is an unfortunate argument for two reasons. The first, and general, reason is that it seems rather odd that if a measure is right and proper and will benefit the public and Parliament, it should not be included in the Bill simply because it was not part of the Bill's original purpose. That indicates an almost childish pique on the part of the Government. It is almost as if they are saying, "We did not think of it first, and we are not prepared to allow you to get the credit for having thought of it, so we will not include it in the Bill." That is a silly way to behave, and I hope that the Government will recognise that and stop behaving in that way. The second reason is particular to PUK. Part of the Bill's original purpose was to set up PUK. Part of setting up such a body is laying down how its accounts will be properly verified and audited and by whom. It is, therefore, part of the Bill's original purpose that statements on how that auditing should be carried out should be in statute. In this case the Government have even less reason for using their excuse about the Bill's original purpose than they do with other aspects of the Bill. I hope that the Government will see the sense of amendment No. 16 before we come to vote on it at heaven knows what hour tonight or tomorrow morning. It would make a valuable change to the Bill; it is in line with the Government's thinking, and the Government could easily accept it without losing face.

Michael Fallon (Conservative, Sevenoaks)

I do not entirely agree with my hon. Friend the Member for West Worcestershire (Sir M. Spicer) that the new clause gives the impression of control—that is not the way that I read it. However, I agree with him that the Government have chosen precisely the wrong cap. It is after all ironic that the Treasury, which is telling every other Department of State that what matters is the quality of spending, not the quantity, and is negotiating public service agreements all over Whitehall, is simply setting a quantitative cap on the expenditure of its own body, rather than a qualitative cap. It is saying that it does not matter what the body gets up to, provided that it does not spend more than £400 million. I would far rather that new clause 7 fleshed out the meaning of the terms and conditions in clause 16. At the moment, PUK and the Treasury can simply make things up as they go along. They can draft whatever terms and conditions they like under which assistance can be provided. Rather than setting a quantitative cap of £400 million, the Minister should have come to the House with a new clause that imposed qualitative control over the type of assistance provided, whether grants or equity, and gave us a handle on that process in statute, so that it was not left to the Treasury or to PUK to define the terms and conditions themselves. That is a central weakness of the new clause. A second weakness of the new clause and of clause 16 is the coyness about what the body is. I notice that even my hon. Friends refer to it as a "body". Let us be clear that it is a bank. The Government deny that. In a written answer to me last July, the then Chief Secretary said: There are no plans for a state investment bank.—[Official Report, 16 July 1999: Vol. 335, c. 367W.] Now we are to have a body that is enabled by the state to make investments on behalf of the state. If it sounds like a bank and looks like a bank, it probably is a bank, and we should refer to it as a bank, because it has banking functions. They are set out clearly in clause 16 and new clause 7. They are functions of lending and of taking an equity stake, whether in assets or securities.

Oliver Letwin (Conservative, West Dorset)

My hon. Friend raises an interesting question. Does he imagine that the body would or should be under the control of the Financial Services Authority? Does he believe that the Bank of England might want to take an interest in it?

Michael Fallon (Conservative, Sevenoaks)

I shall deal later with the way in which the valuation is carried out, but my hon. Friend touches on an important point. A banking function will be carried out by an agency of the Treasury, so perhaps that function should be subject to supervision by the banking authorities. The first step in the whole process is for us to stop being coy and to call the body a bank. It is a state investment bank. I know why the Minister does not want to call it a bank: it conjures up rather dismal memories of the 1970s, which you, Mr. Deputy Speaker, will recall. The previous Labour Government made a rather unhappy attempt to pick winners through the National Enterprise Board, but none turned out to be a winner—"picking losers" might have been a better description of its activity. It would have been helpful if the Minister had clarified the purpose of this body. I turn now to the lending function. The body will be able to commit money in the form of a loan, so it is essential that it is subject to terms and conditions that it does not itself define. There must be independent assessment. We shall come to the accounting function later, and that is the afterthought because it consists of examining whether the money has been properly spent for the purpose for which it was designated. However, we cannot get a handle on the accounting function unless we can measure and audit what the loan was intended for in the first place. As the Bill is drafted, nobody is clear about who can decide the terms and conditions under which financial assistance may be provided. Clause 16(4) simply says: Financial assistance … may be provided on terms and conditions… That is completely meaningless; it does not even make it clear whether PUK or the Treasury will set the terms and conditions, or whether the terms and conditions will be made public. There is a good example of that practice in public-private partnerships in the new commercial freedom being given to the Post Office. Even before legislation was brought before the House, the Post Office was enabled, under secret terms and conditions, to go wandering around Europe, playing at being an international business and buying outfits such as German Parcel. When we asked what were the terms and conditions under which the Treasury had allowed the Post Office to purchase other businesses, we were told that they could not be made available because the memorandum of understanding could not be published. Now the Government have had to bring legislation before the House and the matter may well become a little clearer. There is no point in the Minister saying that the Government cannot clarify the terms and conditions or tell hon. Members exactly how the money will be lent, but they can tell us that, however messy it all is, at least the amount involved will not be more than £400 million. That does not help us at all, and that is a weakness in the new clause. The third aspect of the new clause to which I want to draw the attention of the House is PUK's power to take an equity stake. I am surprised that, even at this late stage, the Minister has not had second thoughts about that. Everyone else thinks that it is a thoroughly bad idea. The Minister will have seen—it has been published—the evidence taken on the matter by the Select Committee. The Major Contractors Group, the Business Services Association and the CBI all think that it is a bad idea, and even the Trades Union Congress was opposed to the Government taking an equity stake through Partnerships UK. The reason is simple. Even the TUC understands that once Partnerships UK can take an equity stake in some projects rather than in others, the projects that it chooses will be labelled and endorsed. There will be an A list and a B list. There is obviously the danger that Partnerships UK may cherry-pick the best projects. There is equally the danger that having invested political capital in particular projects, it will start interfering with the contract terms to make sure that it achieves the right outcome. The project must succeed if Partnerships UK has not only been working on it but invested in it. There is a huge danger that there will be two different types of project—those in which there is a significant equity stake, and all the others. There is nothing in new clause 7 to eliminate that danger or to clear up the confusion. I was pleased to hear my hon. Friend the Member for Arundel and South Downs (Mr. Flight) draw attention to the difficulties that Partnerships UK will have with other bodies, particularly with the Office of Government Commerce, which will try to police this aspect. I am not sure what powers of supervision the Office of Government Commerce will have over Partnerships UK. Perhaps my hon. Friend, who has been labouring on the Bill in Standing Committee, is a little clearer. I am not at all sure what will happen when Partnerships UK has taken an equity stake in a project with a high political profile and the project starts to go wrong. If PUK starts tweaking the original terms of the contract, will the Office of Government Commerce be able to come in at that stage in a supervisory role and prevent PUK from doing that? Can my hon. Friend enlighten me?

Howard Flight (Conservative, Arundel and South Downs)

I am as unclear as my hon. Friend, but there is a further matter on which he may wish to comment. How can Partnerships UK negotiate in the same way with the Treasury and Government Departments in circumstances in which it is an equity investor, and in circumstances in which it has no involvement at all? How can it continue the existing role of the Treasury taskforce if it is charged as an investor?

Michael Fallon (Conservative, Sevenoaks)

That is precisely the weakness of giving Partnerships UK a banking function. That is tantamount to asking PUK to construct within it a Chinese wall that cannot be constructed. Everyone will know which projects Partnerships UK will invest in or is considering investing in. If we are to go down that route, we will have to hear a great deal more about the Office of Government Commerce and give it more supervisory power, to make sure that PUK does not abuse its position, otherwise PUK will be able to muscle all over Whitehall and all over the contracts, putting others at significant risk. In an earlier intervention—I apologise, Mr. Deputy Speaker, for having to slip out of the debate for another meeting—I referred to the weakness of subsection (3). What is the point of setting the limit at £400 million if the Government can increase it any time they want? I do not understand that. As I said earlier, every time a nationalised industry in the bad old days wanted to extend its borrowing limit, which happened often enough, with British Shipbuilders, British Coal and all the other endless drains on the taxpayer, at least it had to come back to the House. It was, perhaps, allowed to increase its borrowing limit once, by another £100 million or whatever, but thereafter, in each case it had to get permission from the House through primary legislation—through another borrowing powers Bill.

David Ruffley (Conservative, Bury St Edmunds)

Is my hon. Friend as troubled as I am about how the figure £400 million was arrived at? How were limits determined in the 1960s and 1970s for nationalised industries? What was the methodology?

Michael Fallon (Conservative, Sevenoaks)

I cannot assist my hon. Friend. I was not in government at the time. I do not know how that was done, but at least the nationalised industries recognised some restraint. They gave themselves power to borrow up to a particular sum, which could be increased once, by order, and that was it. They then had to come back, which they did, with fresh legislation—another British Shipbuilders borrowing limits increase Bill, for example. As the new clause is drafted, the Minister does not have to come back to the House, except through statutory instrument, and there is no limit to the number of statutory instruments that she can promote. She can come back and help herself to another £100 million, week in, week out. Indeed, she can double or treble the £400 million. That is a meaningless limit, because the new clause that introduces it gives the Minister the power to increase it, which she can do by statutory instrument. We all know the deficiencies of that procedure. I hope that when the Minister sums up, she will give us some reassurance that the £400 million limit is for the first five years or whatever, and that she has no immediate plans to come back when Partnerships UK takes a fancy to a particular investment proposal, or, as we get nearer to an election, is cajoled into investing in a project that has a high political profile but which the market otherwise would not touch. We are justified in asking the Minister to do that. The reason is simple. The £400 million is being provided, essentially, for Partnerships UK to invest in projects in which the market is not prepared to invest fully; otherwise it would not be necessary. The Minister should at least be able to clarify where the figure of £400 million came from, the time scale over which it will last—I assume that it is not an annual total—and the prospects of her coming back to extend it. Subsection (2)(d) of the new clause deals with the arrangements that the Treasury proposes to make for "evaluating outstanding expenditure". I have not seen that phrase before. Evaluating outstanding expenditure should be done by some body other than the Treasury. It is the Treasury's money, which it is giving to Partnerships UK, and we will want to judge not just the record of PUK in spending its way through the £400 million, but the Treasury's wisdom in giving it the money in the first place. The Treasury should not be judge and jury, deciding how well the money was spent. I would support any of the independent arrangements proposed in other amendments. Indeed, I would have hoped that the evaluation could have been done independently, and that the Treasury would have seen no problem in inviting another body—the NAO or the CAG, for example—to make the evaluation. Amendment No. 14 is a helpful amendment. It distinguishes much more carefully between the upstream and the downstream activities. There was an exchange on that involving my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley). When my hon. Friend ran through a little menu of upstream activities, he did not touch on the provision of interim finance. He described his approach as reasonable, but I wonder whether he and my hon. Friend the Member for Arundel and South Downs are not being a little too reasonable in the drafting of the amendment. I am not at all clear what "interim finance" for a feasibility study is. Either it is finance, or it is not. How can it be "interim"? Is it a loan? Is it a grant? If it is a loan or a grant, how can it be justified as an upstream activity? Perhaps my hon. Friend can help.

Howard Flight (Conservative, Arundel and South Downs)

The activity is upstream because it ceases when the PFI deal is signed. Finance is provided for feasibility studies of, for example, potential local government PH projects. As I said in my speech, when those projects are finally negotiated and put to bed, the money will be repaid from the total finance for the project. The Treasury could repay it. The inclusion of that in upstream activities is intended to support the objective for Partnerships UK—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman cannot make a winding-up speech in an intervention.

Michael Fallon (Conservative, Sevenoaks)

I apologise, Mr. Deputy Speaker, if I tempted my hon. Friend too much. However, I want to press the point. What happens if the feasibility study recommends that the project should not go ahead? What will happen to the finance? Will it be repaid? If so, who will repay it? Does it constitute a grant that will simply be written off? I am unhappy about allowing Partnerships UK to go even further than the existing Treasury taskforce and start spraying public money around town halls on all sorts of feasibility studies for projects such as supertrams that will not be realised, and for which we will not get our money back. Perhaps my hon. Friend the Member for Bury St. Edmunds can assist?

David Ruffley (Conservative, Bury St Edmunds)

I seek not to assist my hon. Friend but to ask a question. If the Treasury taskforce were involved in upstream activity, who would bear the loss if a feasibility study was undertaken but the project did not go ahead?

Michael Fallon (Conservative, Sevenoaks)

The Treasury would bear the loss. I hesitate to criticise my hon. Friend because he is a distinguished lawyer, but perhaps the phrase "interim finance" needs more work. However, amendment No. 14 is helpful. I hope that my hon. Friends on the Front Bench will be robust about new clause 7. I oppose it. My hon. Friends have already criticised it so strongly that I conclude that we should not accept it and I hope that, such is the power of their arguments, the Economic Secretary will reconsider it. At least she said that she was trying to allay some concerns and did the House and the Committee the courtesy of acknowledging that anxieties exist. They have been expressed to the Select Committee by all sorts of reputable bodies and by those who we want to be engaged in the specific work that we are considering. If the Economic Secretary acknowledges the problem, I hope she will also recognise the solution. We need much firmer controls on the expenditure that we are discussing, and they must be qualitative as well as quantitative. Simply sticking a figure into the Bill and claiming that, however messy matters become, at least the amounts will not exceed £400 million does not satisfy the genuine anxieties of Conservative Members and industry.

Oliver Letwin (Conservative, West Dorset)

Before I begin, I shall reiterate the declaration of interest that I have made repeatedly on Second Reading and in Committee in relation to the Bill and the amendments: slightly ironically, when I have spoken, it has been against my interests. The most important feature of the debate on new clause 7 and the accompanying amendments has been that we have revealed a symptom of the problem with the Bill. Hon. Members have tackled the vexed question of the scope of the application of the £400 million limit for which new clause 7 provides. I do not generally prefer to spot a conspiracy when error will serve as an explanation. On the principle of Occam's razor, one should always choose the simpler explanation. It could be mere oversight, as the hon. Member for Kingston and Surbiton (Mr. Davey) suggested, that the £400 million limit does not cover clause 16(1)(a). However, if that is the case, I am surprised that the Economic Secretary has not brought it to our attention. I have two reasons for supposing that it is not the case. First, the articulation of new clause 7 and amendment No. 28, and the original distinctions in clause 16(1), lead one to conclude that there is meant to be a difference between incurring expenditure in the initial phase and thereafter. That suggests that the £400 million limit has been specifically targeted at expenditure after the initial phase, rather than through mischance. It is notable that new clause 7(1), to which amendment No. 28 refers, makes it clear that the original phrase in clause 16(1)(b)—"may provide financial assistance"—needs to be expanded. In amendment No. 28, proposed new paragraphs (b) and (c) of subsection (1) read: may incur expenditure for the purposes of investing in the body … and may provide loans and guarantees and make other kinds of financial provision. New clause 7 invites us to perceive a fundamental difference between clause 16(1)(a), which will not be capped by the £400 million limit, and provides that the Treasury, may incur expenditure in respect of the establishment of a body, and proposed new paragraphs (b) and (c) of subsection (1), which provide that the Treasury, may incur expenditure for the purposes of investing in the body, or may provide loans and guarantees. There may be some deep inwardness that we laymen miss. However, if that is the case, I am again surprised that the Economic Secretary has not seen fit to intervene and correct us amateurs on the basis of advice from her gurus. On a layman's statutory construction, I incline to the view that the scope of clause 16(1)(a) is not only uncapped but unlimited. To take an absurd example, it could permit the expenditure of billions of pounds on the establishment of a body. I am sure that the Economic Secretary will tell us that it is not the intention of the prudent Chancellor of the Exchequer to permit billions of pounds of expenditure to be incurred. However, if I am right, and the scope of clause 16(1)(a) would allow for such investment, the massive concession that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) so painstakingly eked out of the Government—that new clause 7 should impose a limit of £400 million—is vapid, nugatory, empty and meaningless: the £400 million limit is no limit. I draw the House's attention to that not only because it is important—although several of my hon. Friends have proved its importance through eloquent speeches—but because it is symptomatic of a general problem, which is that matters are not as they appear. There appears to be a control, just as there seems to be proper accounting in other provisions, which we shall discuss later. We have a limit that is unlimited, a concession that is not a concession and a control that is uncontrolled. 6.30 pm The problems with the £400 million limit, so called—the unlimited limit—do not end there. The situation gets considerably worse. Here, I am much indebted to prolonged discussion with my hon. Friends. The scope of the £400 million limit is constricted in another respect: it very specifically refers to the expenditure of moneys by the Treasury, not to the expenditure of moneys by the body itself—the body which my hon. Friend the Member for Arundel and South Downs referred to as a bank. My hon. Friend the Member for West Worcestershire (Sir M. Spicer) pointed out that the £400 million limit in no respect limited the totality of PFI expenditure. This we must agree, and knew. I am speaking not of that failure of control, which might be expected in such a new clause, but of the fact that there is no limit on the activity of the body which it was the purpose of my hon. Friend the Member for Arundel and South Downs to have limited: there is a limit only on the expenditure by the Treasury on that body. According to my reading of the new clause, the body itself is capable of piling up unlimited liabilities that are not capped by the £400 million limit: indeed, there is no articulation in the new clause that would allow such liabilities to be capped. After traversing some other ground, I shall come on to the question of the accounting of those liabilities, which is a vexed question indeed. Before we come to that, let us deal with the economics. I take it that it is part of the body's purpose that it should not be utterly controlled in its day-to-day operations by the Chancellor of the Exchequer, because were it to be so, as my hon. Friend has repeatedly pointed out, the purpose of transferring from a Treasury taskforce to a separate body would be nil. PUK may well seek to build up large liabilities in carrying out its business, and if it does, the following economic question arises: is the full faith and credit of Her Majesty's Government behind this body in what may be sizeable guarantees? If those guarantees should, for example, grow to billions of pounds—or tens or hundreds of billions of pounds—over time, will Varley Marshall Assurance principles obtain? Will ECGD principles obtain? Which principles will obtain? Who can say how much Parliament will find Her Majesty's Government have turned out—on purpose or by error—behind liabilities that we thought, or might have thought, would be capped at £400 million but which in practice have not been capped at any amount, £400 million or otherwise?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Does the hon. Gentleman think that the solution is to introduce in another place a cap on the liabilities, or does he think that Partnerships UK should have in its constitution a no-bail-out clause? I was probing the Minister for her views on that. Does the hon. Gentleman think that it may be the way forward?

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman and I are swapping inclinations. I was about to observe that I thought that his proposal of a no-bail-out clause to handle this potential problem was highly intelligent. I do not know, and I do not know whether the Government's lawyers in all their wisdom—and they have much—know, whether a no-bail-out clause would work. I do not know, because I do not think there has yet been a case that has been seen to work. We all recall the vexed situation when local councils got into considerable financial difficulties and lenders found to their surprise that there was no bail-out, without that having been stated. But there have also been cases—British Leyland and Varley Marshall Assurance, to which I alluded, are cases in point—in which it was at least believed that full faith and credit might operate, notwithstanding the fact that the original agreements had been so constructed as to avoid its operating. This is a vexed area of law, about which great experts may disagree. It may be that a robust no-bail-out element could have been inserted in the new clause; I do not know. What is clear is that either Ministers did not intend such a result, or that the draftsmen did not know how to achieve the desired result because it cannot effectively be achieved in law, or that Ministers did not consider the question. If Ministers did not consider it, of course the draftsmen would not have considered it. In fact, no one would have considered it. That, I suspect, is the empty box into which we are staring. I think that what happened is that the force of rhetoric of my hon. Friend the Member for Arundel and South Downs in Committee, and the force of logic behind his rhetoric, were such that Ministers said, "We are in a frightful fix. The PAC, the Liberal Democrats and the Conservatives—and, for all we know, many of our own Members—are worried that we are doing something that may not be quite kosher. Officials—go away and construct the best limits you can that will have the following characteristics: they will not limit anything or even seek to impose a limit that would actually limit anything because they will not to any degree control the activities of the body but will merely control the Treasury. And just in case there is any kind of gap in the total discretion that we shall allow ourselves, just make sure as well that we can give PUK however many billions we want up front without any control whatever." If that is what happened, it is a symptom of an attitude to our proceedings in Committee and on Report that is very distressing. Another possible interpretation, I admit, is simply that there was undue haste. It is possible—it may even be plausible—that the problem with the new clause was brought about by undue haste. The whole of the Bill has been afflicted by the insertion of an extraneous foreign body. In the first place, there is no reason for clauses 16 and 17 being in the Bill; they belong in quite another Bill—a serious Bill dealing with the serious matters concerned—and got into this Bill, where they now sit, by the mysterious processes of Cabinet committees and the like. The Government have been in undue haste to get the whole of the rest of the Bill, which deserved prolonged consideration, through because they are so desperate to get clauses 16 and 17 through. That, at least, is what we have been told. If the result of that is that, through honest error, new clause 7 has been introduced in its present form—with a limit that is not a limit and does not address the problem—the situation is much less distressing. There is the possibility of the Government's bringing forward on slightly more mature reflection—for which I have no doubt their lordships will give them ample opportunity, because I hope that another place will reject the new clause as it stands—a proper new clause that provides the limit that we seek. Then we can ditch all the ghastly conspiracy theories and recognise that the problem was simply one of undue haste. Why this haste? I know that this is a matter of Government policy, but there are many Government policies. It does not seem to me to be a matter of life or death whether these provisions are passed tomorrow or the day after. I cannot see that there is such a rush. This is not controversial—so in principle it will not be got rid of by a future Government. We all accept in principle that the PFI is an excellent thing. In constructing the new clause, therefore, Ministers should have had in mind the necessity for something with consensus behind it—something that provided a robust solution in the long run for a policy that hon. Members on both sides of the House support. The new clause certainly does not do that in respect of control.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Has the hon. Gentleman considered two other possible reasons why the Government have not adopted the no-bail-out solution to their problems? One may be that they are concerned that it would set a precedent that could be applied to other public corporations or corporations in the public sector in which they have an interest. The other is that the Treasury is so used to exercising absolute power that it does not believe that, if a no-bail-out clause were written into the constitution of such a body, Parliament would not, because it is sovereign, simply override it. If the hon. Gentleman agrees with that second possible answer to the question of why the Treasury did not go down that route, does he not think that that demonstrates the dinosaur attitude in the Treasury?

Oliver Letwin (Conservative, West Dorset)

I do not think that the first explanation can be right. If, in this instance, the Treasury were concerned about the maintaining of control or power—as the hon. Gentleman knows, we will allege that later, but in respect of other matters—it would surely have introduced provision for a genuine control, phrased, perhaps, as "a limit on the total liabilities" that could be incurred by the body. The fact that it neither did that nor introduced a no-bail-out clause suggests that the Treasury was not in control mode on this occasion. The hon. Gentleman suggested a second possibility: that the Treasury, or the draftsmen—or, indeed, Ministers—did not wish to create a precedent. I am well aware that Whitehall is particularly keen not to create precedents. Government are not like other bodies; they are often afflicted by precedent, and often take steps that they do not consider right in particular cases because they are influenced by the argument that they have done the same in other cases. They may have acted without due heed. I accept that that is frequently a powerful argument, and it is possible that the desire not to create a precedent is one of the causes—or even the cause—of the opposition to a no-bail-out clause; but, if that were the explanation, it would be irrational. I see no reason for the Treasury to object to such a clause becoming a widespread precedent: it is the bail-out clauses that create the precedent to which, on a rational basis, the Treasury should object. The idea of a range of bodies that are somehow associated with the state, but against which no claim ought to be made entailing a claim on the state and in respect of which no faith and credit are given by the state, is surely attractive to the Treasury. It might not be attractive to a Department wanting to achieve a particular result in particular circumstances, but I should have thought that it would be highly attractive to the Treasury. I cannot think that that is the explanation; certainly, I hardly ever accuse Her Majesty's Treasury of being irrational. I think that the explanation is either undue haste, or a mild conspiracy. I hope that the Minister will tell us that it is a case of undue haste: that would give us an opportunity to reverse the position, and improve on new clause 7. My right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) and other PAC members have tabled an amendment dealing with the important question of the scope of action of the Comptroller and Auditor General—a theme that we shall traverse in awesome detail when we discuss the general issue of the CAG's scope of action in regard to non-departmental public bodies, which we debated at length in Committee. The amendment presents us with an interesting example. My right hon. Friend rightly corrected me when I made the improper assertion that the Government did not want the PAC, the National Audit Office and the Comptroller and Auditor General to be involved. He corrected me because he had information that I should have possessed, but did not. It appears that after the Minister had said in Committee that she would not have the Comptroller and Auditor General anywhere near this stuff—I parody slightly—her esteemed colleague the Chief Secretary to the Treasury went to the PAC and said that, as a matter of fact, the Comptroller and Auditor General would not just be somewhere near but would be allowed to audit the body. That proposition, which we welcome, led to this question: why is the PAC amendment—amendment No. 8, if I recall correctly—necessary?

David Davis (Conservative, Haltemprice and Howden)

I fear that, for the second time today, a slight misapprehension has arisen. The amendment requires access, not audit rights: that is a milder requirement. Audit rights would not be possible, because the organisation would be constituted as a company, and it is not currently possible for the Comptroller and Auditor General to audit companies. The amendment asks for access, so that Parliament can know that its money has been spent properly.

Oliver Letwin (Conservative, West Dorset)

My right hon. Friend is right to correct me. I slipped into talking of audit when I should have talked of access, which is one of the two limbs of what the PAC seeks to impose on a wider scale. That is all that is sought in this instance—but this question remains: why is it necessary to table an amendment to put in statute what we now discover that the Chief Secretary wants to do in any event? I invited both my right hon. Friend and the hon. Member for Kingston and Surbiton to speculate about that, but I am not yet satisfied that we have got to the bottom of the matter. The Economic Secretary had ample opportunity to intervene during that discussion, and, if she catches your eye, Mr. Deputy Speaker, she will have another opportunity to explain. I am, of course, prepared to be corrected if my speculations prove to be wrong; but I am bound to say that it is a rum situation when a Government have an avowed intent to do something that they have an open statutory opportunity to do without any delay or difficulty, and do not do it. Normally, when Ministers do not want to enact proposals, they say that they have no time in which to legislate, but if the Economic Secretary said that this evening, it would be a slightly weak excuse, because here we are, legislating. There cannot be a drafting difficulty, as my right hon. Friend the Member for Haltemprice and Howden has behind him just about the largest group of drafting assistants available to any living human being, in the shape of the National Audit Office. In any case, the draft is blissfully pellucid. The hon. Member for Kingston and Surbiton speculated that it might again be a matter of precedent—that the Treasury wanted to avoid setting a precedent by giving the PAC access to a body such as this. But why should it want to avoid setting such a precedent? If the Chief Secretary has decided that the Comptroller and Auditor General should have access to one body, it presumably follows that the same should apply to other such bodies. I see no logic that should lead to one conclusion without leading to the other.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I tend to agree that the logic suggests that it should be possible for all such bodies to be scrutinised by the NAO. However, the Secretary of State for Culture, Media and Sport recently made it clear that the Government were not willing to allow the NAO properly to scrutinise the BBC, which is a not dissimilar body. Surely the Government are not following the logic of the Chief Secretary in any respect in regard to corporations such as this.

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman tempts me to agree with him—and, indeed, I do, in the case of the BBC. I wish that we could debate that subject, but you, Mr. Deputy Speaker, ruled that the amendment concerned should not be selected. There may be deep concern about the possibility of extension to bodies such as the BBC. The fact is, however, that if the Chief Secretary thinks that he can avoid having that precedent argued against him when he has conceded the precedent in this instance, he is much mistaken. I have no doubt that my right hon. Friend the Member for Haltemprice and Howden and his pack of hounds from both sides of the House in the PAC will assail the Chief Secretary daily with points about the precedent that he has set, and rightly too. The Chief Secretary has set the precedent anyway, and I cannot for the life of me see why he should make it worse for his own cause—his own bad cause, in this instance—by incorporating in legislation a provision that will have the effect that he says he wants in any event. The only people he could possibly limit are a future Government, and that will not involve him. He cannot feel that, having said something to the PAC—that awesome and solemn body—he can go back on it. Putting the provision in statute would involve no loss to him. I apologise for coming up repeatedly with the same febrile explanations, but I am bound to say yet again that I consider this to be a case of undue haste. I think that the Government feel that the PAC is being a frightful nuisance. They are willing to tell the PAC that they are going to do things and then, no doubt, to do them. When the Chief Secretary—a thoroughly reasonable man—is in front of the PAC, he finds himself compelled to make thoroughly reasonable utterances. When the Government talk to the draftsmen, however, their basic instruction is "Press ahead. Delay not. Do not tarry. Do not instil in the Bill anything that could lead to further doubt or hesitation. We want the thing out quickly. If the PAC presents an amendment that is not drafted quite correctly we might find that it would have to be revised later. There might have to be Government amendments; the Lords might be given more of an opportunity to delay. No, keep it out: we will give the assurance, and the PAC will go home to bed." The presence of my right hon. Friend the Member for Haltemprice and Howden proves that the PAC has not gone to bed, and is not going to. If this is a matter of undue haste, it is also a matter of hastening slowly. The Economic Secretary to the Treasury would do better to slow down, to incorporate my right hon. Friend's amendment and to proceed deliberately to consider applying the access rights to a wider range of non-departmental public bodies, as should, indeed, happen. I turn to the next element of the debate on this important Bill. I admit that it is an odd topic in the context of the Bill. It is the broad range of questions about the forethought—or rather, I regret to say, the lack of forethought—that the Government have displayed on the purpose of the entity or, to use the phrase that my hon. Friend the Member for Sevenoaks (Mr. Fallon) used, the bank. May I say in passing that I genuinely do not know whether it is a bank. As there is no reference to the Securities and Futures Authority, I take it that it is not a bank. If it is not, what it is I do not know. I suspect that my hon. Friend was trying to say that none of us has the foggiest clue exactly what the item is. It would be helpful if someone told us.

Michael Fallon (Conservative, Sevenoaks)

I hope that my hon. Friend is not suggesting that he does not know what this body is. He is supposed to know what it is. Does he agree that, if it has a lending and an investment function, it will be a bank?

Oliver Letwin (Conservative, West Dorset)

My hon. Friend raises an interesting question—the sort of question that is much debated in the City, when it has time to debate things, which is not often: whether an investment bank is a bank, particularly when it is not a licensed deposit taker. The body is not a licensed deposit taker, and it may or may not be an investment bank. I am not clear whether it has the capacity even to be funded as an investment bank is funded, or to gear itself up as an investment bank does. The honest truth is that no one the length and breadth of Whitehall has the foggiest clue what the answers to those questions are. My hon. Friend is slightly unfair in saying that I should know. It is not possible to know the nature of something that has been created by people who do not know what it is.

Michael Fallon (Conservative, Sevenoaks)

May I clarify? I was not implying that my hon. Friend should know something because he should know it. I was implying that, because of his background and great expertise, if anyone in the House could judge what it is, it would surely be him. That is why we look forward to him throwing further light on that particular vehicle.

Oliver Letwin (Conservative, West Dorset)

I am charmed and delighted that my hon. Friend, who is a much greater expert in these matters than I am, thinks that I have some expertise on what is a bank and what is not, but my problem is that I do not even know what this body does in the first place. Even if I knew that it was to be a bank, as my hon. Friend the Member for Arundel and South Downs has abundantly and eloquently pointed out, we do not know whether it will engage in investments. We do not know at which stage in the process it will intervene, or is meant to intervene. There is a possible explanation, which is roughly the one that Ministers, in certain moods, have given of the entity: it is a sort of consultancy or facilitator. Another possible explanation arises from reading the Bill, which my hon. Friend the Member for Sevenoaks has done, with all his customary acuity: it looks very much like a bank. If something is made to look in statute very much like a bank and, in descriptions of it by those who founded it, very much like a consultancy, we are left with the question: what is it? Does anyone know what it is? My answer to those questions is that I do not know and no one else knows.

Michael Fallon (Conservative, Sevenoaks)

Does my hon. Friend at least accept that, if the body—let us call it a body—takes an investment under subsection (4)(c), it will not be a consultancy?

Oliver Letwin (Conservative, West Dorset)

I feel that we are going to intrude on your good will in a moment, Mr. Deputy Speaker, but there are consultancies that take investments. Every time a consultancy takes a success fee, it takes a kind of investment. I suppose that the bank or consultancy—whichever it may be—might take success fees, call them investments and thereby satisfy the terms of the Bill, yet might be in no sense a bank. If the body is designed to deal with what, in the hideous jargon, is called the "upstream" bit of the activity—which means consultancy, helping a project off the ground—it could agree, for example, to offer its services for equity, which is a sort of success fee and investment but not a banking activity. However, if it is intended, as my hon. Friend the Member for Arundel and South Downs suspects, to use the clause 16(1)(a) loophole to spend a large sum of money from the Government and, no doubt, from the private sector to finance projects in which, in a conflict of interest, the body has previously engaged as an adviser, it verily is a bank making proper investments, but is not the item that Ministers have described in their various statements. I repeat: I genuinely do not believe that we have the slightest idea what the body is. What is much more worrying is that I do not believe that Ministers have the slightest idea what it is. I suspect that the account that Ministers would give, if they were being honest and at the same time as transparent as possible, is that it is an advantage not quite to have decided what the body is because they want to leave a little flexibility—they do not quite know how it will operate and there is an experiment going on. We could have some sympathy with that proposition, except that statutes are not the places in which to base experiments. Experiments are much better done on an administrative basis, under all the control that that allows. Statutes are much more applicable to things about which one has a pretty clear idea, so that the statute clearly describes the controls and the nature of that which it sets up. I would have thought that that was a reasonable principle of legislation. I do not think that Ministers have followed it. I assume that they are being straightforward; I do not think that they are trying to pull a fast one on us. If they are being straightforward, they are setting up the basis for a widespread, over-hasty experiment without a clear idea of where they are going. It is not really on those matters that I wanted to concentrate in relation to new clause 7. Above all, I wanted to draw out the impact of the new clause and of how it relates to clause 16 on our understanding of matters that are to come before us later. I think that the impact is profound and that I have at last understood how deep the problem with clauses 16 and 17 is in the context of the rest of the Bill—and hence how deep the problem with new clause 7 is. It is not just that we do not know what the body is, which might be regarded as an ontological problem that Parliament does not need to concern itself with. There is a much more practical problem: we have not the foggiest clue how it will be accounted for. I admit to being a simple man when it comes to such matters, but the Bill is entitled Government Resources and Accounts Bill. It is meant to be the Bill in which the Government set up a system of accounts in which things will be accounted for—

Howard Flight (Conservative, Arundel and South Downs)

Properly.

Oliver Letwin (Conservative, West Dorset)

Properly, as my hon. Friend helpfully says from a sedentary position. That is the whole purpose of the rest of the Bill. Clauses 16 and 17 are in the Bill, I admit, by sleight of hand, but they are there. They should display, if any provision should, the principles of proper accounting that are meant to be enunciated in the rest of the Bill. It will be a sad day for accounting if this is meant to be a sparkling example of clarity about how something should be accounted for. Despite repeated entreaties about these matters in Committee, as far as I can see, new clause 7 contains not a single mention of the accounting treatment of that mysterious body, whose nature we have already owned we cannot discern. As my hon. Friend the Member for Sevenoaks has pointed out repeatedly, if we look at new clause 7 and clause 16, to which it refers, it may be that the body will incur considerable liabilities in respect of guarantees, loans and non-equity investments. How will those be accounted for? The body may have investment assets. We may be told by Ministers that that is not the intention, but I repeat: that is what is provided for in the Bill and, by implication, in new clause 7. The very first paragraph of the register of assets, which underlies the whole of the Bill, states: The National Asset Register covers all central Government departments together with their executive agencies (including trading funds). 7 pm Is Partnerships UK a trading fund? We are back to the ontological question. I do not know whether it is a trading fund, but I suspect that it is not. I may be wrong about that, and am open to correction. Is it an Executive agency? I do not think that it is. I may be wrong, and am more than happy to be corrected on that point, too. However, I am convinced that it is not a central Government Department, so its assets will not be in the National Asset Register. Therefore, the first point about the body's accounting is that the asset side of its balance sheet will not be there—it is Macavity; it is gone; it has disappeared. It has, in fact, not even appeared. It is pretty bad news, is it not, to discover not only that a body being established by the Government Resources and Accounts Bill will be exempt from the access of the Comptroller and Auditor General, but that the body's whole purpose will be entirely mysterious and its assets will not be accounted for? That is genuinely self-parodic. The situation is much worse on the liabilities side. In what, I have to admit, is one of the most remarkable and brilliant pieces of apparent clarification ever offered by a Minister to a Standing Committee member, the Economic Secretary has cast a profound veil of obscurity over the issue of liabilities. In Committee, my hon. Friend the Member for Arundel and South Downs raised the pertinent issue that I am raising now in relation to new clause 27. He asked how the liabilities, and particularly the guarantees, that the body might give, and that might be given to the body by the Government, would be accounted for. On 10 February, the Economic Secretary replied at some length to my hon. Friend in a letter. Although I would be surprised if it were the intention that anyone should be able to understand what she said to him in that letter, I am certainly assured that no Opposition Member in the Chamber has the slightest understanding of it. She said: Firstly, you asked about the procedure for reporting guarantees and whether any guarantees given to PUK will appear in Government accounts or in a note to them. I can assure you that Parliamentary reporting arrangements in respect of contingent liabilities—which includes those arising from guarantees—will not change under the GRA Bill. Therefore, the first thing that we are told is not the answer, but that nothing will change. As we did not know what the situation was in the first place, that is not helpful. Nevertheless, the Economic Secretary went on to say: As I said in Committee, there is no intention to hide guarantees. The arrangements for reporting guarantees are set out in section 26.3.13 of— at this moment in reading the letter, one hopes to hear the "Resource Accounting Manual", which is the document that has been produced in line with the Bill, but no. The letter says that the arrangements are set out in section 26.3.13 of Government Accounting, which I take it is to be superseded, or at least outdated, by the very item that underlies the Bill that we are discussing. The letter continues: In respect of PUK this would mean— or that item that was no longer relevant would mean— that a statement would be laid before both Houses of Parliament in the event that a guarantee were given. Such a statement would indicate that the liability would be charged to the Consolidated Fund. Any guarantee provided would appear, like other contingent liabilities, in the Supplementary Statements to the Consolidated Fund and National Loans Fund Accounts. We have before us two of the most distinguished members of the Government, but I venture to prophesy that they have never seen, let alone read or studied, the supplementary statements to the consolidated fund and national loans fund accounts. I suspect that there is not an hon. Member who has the slightest idea which guarantees are or are not contingent liabilities recorded in those supplementary statements. I may be wrong about that. Perhaps, all of a sudden, the Financial Secretary and the Economic Secretary will leap up and tell me the exact figure for the contingent liabilities recorded in the supplementary statements to the consolidated fund and national loans fund accounts. I doubt it, however, not only because those are among the most profoundly mysterious documents that have ever been produced by Whitehall, but because they are intended to be so.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Is not the hon. Gentleman simply criticising the whole Supply procedure? Such documents exist, and they are very important documents that Ministers and the House should examine. The fact that the House does not properly examine the Government's estimates is the real reason why those documents do not receive the attention that they should receive.

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman is right. At a more serious level, I am saying the same. He says the same in other amendments that we shall discuss later, and with which we profoundly agree. There is a massive issue here that goes way beyond the scope of new clause 7, and we shall discuss it later in our proceedings. Perhaps the most interesting development in Committee was that we touched on the issue, when some of us began to understand the profound lack of parliamentary scrutiny that occurs because of the intense opacity of the arrangements that have been constructed for the control of genuine public liabilities. I am making the much narrower point that the Economic Secretary's letter was a masterpiece of opacity, the purpose of which was to tell us about an outdated system, which itself was obscure, for making a contingent liability disappear. The letter said nothing about how contingent liabilities will be accounted for in the system that the Bill—this is the supreme irony—establishes. One might have thought that that would be relevant to the question of how far, in the Bill, the liabilities from the new body to the Government and from other entities to the new body will be accounted for. That, of course, takes us straight to the "Resource Accounting Manual". The extraordinary thing is that when we go to the manual, we discover nothing more, or at any rate nothing more that is in any way clear. The point is very pertinent to the concerns that my hon. Friend the Member for Sevenoaks expressed about the nature of the beast. In paragraph 4.7.6 of the "Resource Accounting Manual", we are told: separate disclosure of information about a particular contingency need not be made if that information has a protective marking. There are, therefore, certain types of information that have a "protective marking", about which not even a statement on contingent liability needs to be made. As I cannot understand paragraph 12.1.23, I do not know what it is to have had a protective marking or what qualifies as having a protective marking. I understand from paragraph 12.1.23 that the description of protective markings is given in the "Manual of Protective Security: Framework and Guide", issued by the Cabinet Office. I spent a while with that document, which, for all I know, my right hon. Friend the Member for Haltemprice and Howden is the author of or a guru on. However. I have to admit that my paltry intellect was quite incapable of deciphering the rules for protective marking.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

In Committee, did not the right hon. Member for Haltemprice and Howden describe protective markings as sophisticated and not for National Audit Office eyes?

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman may have a valid point. However, let me pass on from all of that. Let us assume for a moment that the protective marking is not an issue, and simply ask ourselves whether the contingent liabilities that we are discussing will have to be disclosed. The answer is that we do not know, because we do not know whether my hon. Friend the Member for Sevenoaks was right about the nature of the beast. If, broadly, Partnerships UK will give financial guarantees—which are almost certain to be called if the risks that they are covering materialise—and if the chances of those risks materialising are high, according to the "Resource Accounting Manual", it will be necessary to disclose those contingent liabilities, although they will remain simply a disclosed item and not on the Government's balance sheet. Conversely, if the body will not give those types of guarantees, but something quite different, it is unclear whether those will have to be listed as contingent liabilities. The long and the short of it is that on neither the asset side nor the liability side of the balance sheet do we have the slightest idea—nor, if we are to judge by what Ministers have said in new clause 7 and in the Bill, do Ministers have the slightest idea—how the body that Ministers are creating will be accounted for. That is in the realms of self-parody.

Melanie Johnson (Labour, Welwyn Hatfield)

It is important to say first that Partnerships UK will fill a unique role. The Government make no apologies for that. There will be nothing to equal it in the private sector to address the weaknesses in the public sector, particularly in skills and commercial experience. I take nothing away from the good quality of management that we have in various areas of the public sector, which the hon. Member for Kingston and Surbiton (Mr. Davey) celebrated. PUK's role will be that of co-venturer, strengthening the public sector client in private finance initiative and public-private partnership transactions. PUK will help the public sector to raise its game, as the Treasury taskforce has done to date. It will enable the public sector to become a more effective client. That should mean more opportunities for everyone, more deals, lower costs and greater clarity and speed in PFI and other PPP deals. PUK will not only improve the deal flow in existing PFI sectors, but open up new sectors and develop new models of public-private co-operation. The Opposition amendments would do nothing to further those aims. There could be a reason for that. They may not be intended to help us to pursue those aims, but perhaps that is uncharitable. I am a little confused by the debate, because some hon. Members seem to be experiencing extremely bizarre problems. The hon. Member for Arundel and South Downs (Mr. Flight) believes that the relevant clauses are tucked away. I am not sure how a clause can be tucked away in a Bill. I await elucidation. If we accepted the amendments, PUK would be unnecessarily restricted. Its role should be to adapt to fit the needs of particular public sector bodies and projects. Under the amendments, PUK could help to negotiate arrangements for a PPP project with Whitehall Departments, but not, for example, with NHS trusts or non-departmental public bodies. I am not sure why Opposition Members have made that distinction and why they appear to want to leave out NHS trusts and some NDPBs. In addition, PUK would not be able to participate in PPP deals as a co-developer with public bodies, as we envisage that it should. It must have the freedom to develop in a changing PPP market if it is to build on our reforms to the PFI process and the current success of the taskforce. Opposition Members have expressed concerns that the body will have an unfair advantage because of limitless funding from the Government purse. That is not the case. I shall deal with some of the specific points that have been raised. The hon. Member for Arundel and South Downs raised what he saw as a conflict between making money and helping the public sector. PUK will act as a co-venturer and co-developer of projects. Its role will be structured to maximise the overlap of interests with the public sector. There will also be appropriate checks and balances in the corresponding structure to ensure that PUK works in the public interest. There is no question of PUK competing unfairly. It is not a bank or a general adviser. Opposition Members spent a long time speculating on whether it was a bank and entertained themselves greatly on the subject. That entertainment was not universally experienced. Apparently, they had not listened to a word that was said in Standing Committee. In a brief contribution on 20 January, I said: Partnerships UK will not operate as a bank. It must retain the flexibility to generate new business.—[Official Report, Standing Committee A, 20 January 2000: c. 266.] I could not have given a clearer statement of the fact that we do not view it as a bank. It will not invest or pick winners or losers. Its core business will be to make the public sector a better procurer and to make the PH work better.

Oliver Letwin (Conservative, West Dorset)

I entirely accept that the hon. Lady said the words that she has quoted from column 266, which I have before me. I mentioned that she had said that. Does she accept that new clause 7 wholly fails to put those principles into the Bill?

Melanie Johnson (Labour, Welwyn Hatfield)

No, I do not accept that. PUK has a distinct role that will address the skill deficit in the public sector. I thought that Conservative Members appreciated the work of the Treasury taskforce and recognised that someone needed to fulfil that role. The hon. Member for Arundel and South Downs asked why we did not continue with the Treasury taskforce. Private finance needs private sector skills. Private sector people cannot be kept in the public sector for ever. It is likely that in the longer term they would go native or leave. The only way to sustain private sector deal-doing expertise over the longer term for the benefit of the public sector is in a PPP classified to the private sector, which can offer appropriate rewards and disciplines. If we were to carry on with the Treasury taskforce, we would need to expand it. That is another point that Opposition Members have not considered. Departments will choose whether to use PUK. We are consulting public bodies during the business planning on PUK. Reaction from them and from the City has been favourable. A question was raised about the role of the Office of Government Commerce. The OGC, PUK and the Treasury will work together. We made that clear when we published the Gershon and Bates reviews. PUK will not be out cherry-picking. Because it is a private sector organisation with a clear public sector mission, its focus will be on those parts of the public sector that currently find it hard to engage in PFI projects. It should result in additional business. Like its predecessor, the taskforce, PUK will have selection criteria for the deals that it chooses and will concentrate on difficult, complex and awkward projects where it can add most value. The public sector will use PUK on a voluntary basis when it believes that it can add most value. The hon. Member for Sevenoaks (Mr. Fallon) asked whether PUK was a state investment bank. As I have said, it will not operate as a bank and it will not be state-owned. Its core business will be to make the public sector a better purchaser. It will be a private sector body and will not invest on behalf of the Government. There has been considerable discussion about expenditure under clause 16(1)(a). That issue was initially raised by the right hon. Member for Haltemprice and Howden (Mr. Davis). That paragraph relates to the establishment of Partnerships UK. Opposition Members have suggested that large sums—I believe that there was a mention of dowries—could be provided to PUK. I assure hon. Members that that is certainly not the case. Such sums would relate to on-going activities and would be covered by clause 16(1)(b) and subject to the limit. That is a good reason for introducing a specific limit, which Opposition Members have accepted in principle.

Howard Flight (Conservative, Arundel and South Downs)

I specifically asked what the intended establishment costs were.

Melanie Johnson (Labour, Welwyn Hatfield)

I hesitate to put a figure on that, but we are talking about less than £10 million. I think that we will probably come in under that maximum, but I hesitate to specify a figure, because only when the body is established can we be clear about the cost. We are certainly not talking about sums anything like the overall figure of £400 million or to any figures that might be mentioned in relation to dowries.

Oliver Letwin (Conservative, West Dorset)

I am grateful to the hon. Lady who has been very good about giving way. Would she consider the possibility of including those costs within the £400 million so that the whole issue can be laid to rest?

Melanie Johnson (Labour, Welwyn Hatfield)

I am happy to take that idea away and think about it, but I can give the hon. Gentleman no specific assurances.

David Davis (Conservative, Haltemprice and Howden)

I support my hon. Friend's suggestion. I raised the matter in the first instance because the phrasing of the Bill is not very clear. I did not believe that the Government had another agenda; it seemed to me that the phrasing in the Bill ought to be clear. I would not object if those costs were included within the limit and the limit was increased by £50 million, or whatever figure was appropriate. That would be a sensible move.

Melanie Johnson (Labour, Welwyn Hatfield)

I am grateful to the hon. Member for West Dorset (Mr. Letwin) and the right hon. Member for Haltemprice and Howden for those suggestions. I am particularly grateful to the right hon. Gentleman for clarifying his response. I shall give the matter further consideration, but I can give no specific assurances. It is important to emphasise, however, that our intention is no different from what the right hon. Gentleman is saying. He is concerned that the provision is not sufficiently clear. Parliamentary draftsmen and my advisers clearly believe that it is, but the point has been debated this evening. In regard to the £400 million, I feel that I should not have listened to the hon. Member for Arundel and South Downs. Having virtually taken up the suggestion that he made in Standing Committee, I sat here this evening and listened to complaints from some Conservative Members—not the hon. Gentleman—that any figure had been included in the provision. Others complained that the figure had been set at £400 million. However, the hon. Member for Arundel and South Downs said in Committee that at one stage the Government said that the figure should be taken seriously. A maximum of £500 million should be more than sufficient to finance whatever substantial portfolio of start-up feasibility studies may be necessary in the public and local authority sectors. We agreed with him, but we thought that £500 million was a little too much and that we should look at a lower figure. We have come up with £400 million, which I believe is the right ballpark figure because it provides maximum benefit at minimum cost. It will still allow the new company some flexibility.

Oliver Letwin (Conservative, West Dorset)

I am grateful to the hon. Lady, but perhaps she should take another look at column 256. My hon. Friend the Member for Arundel and South Downs said: £500 million should be more than sufficient to finance whatever substantial portfolio of start-up feasibility studies may be necessary… My hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) then said: It will be useful to draw attention to the potentially unlimited expenditure in which the new body could engage.—[Official Report, Standing Committee A, 20 January 2000; c. 256.] There were serious signals to the Minister that we needed an overall limit on the financing of the body and its expenditure.

Melanie Johnson (Labour, Welwyn Hatfield)

I accept the hon. Gentleman's point, however there has been a certain lack of charitableness in the Opposition's response to our picking up the exact drift of the intentions of the hon. Member for Arundel and South Downs and his hon. Friends in Conunittee. As I have said, we have no objections in principle to imposing that limit, and within the limit we shall ensure that our commitments are the minimum necessary to enable the successful launch and development of PUK. At the same time we shall make sure that they are on terms that represent a sensible investment for the public sector.

Michael Fallon (Conservative, Sevenoaks)

I am grateful to the Minister who is being extremely kind in giving way. I know that she is trying to answer a number of points, but if she is leaving the £400 million limit, will she say for how long it is likely to apply? Will it be one year or five years? Will she explain why it is extendable only by order?

Melanie Johnson (Labour, Welwyn Hatfield)

I shall come to that in just a moment. First, let me turn to Opposition amendment No. 16.

David Davis (Conservative, Haltemprice and Howden)

I could have raised this matter on a point of order. The Minister describes amendment No. 16 as an Opposition amendment, but the amendment is in my name, that of the right hon. Member for Swansea, West (Mr. Williams) and that of the hon. Member for Newbury (Mr. Rendel). It reflects the Public Accounts Committee report on the matter.

Melanie Johnson (Labour, Welwyn Hatfield)

I am grateful to the right hon. Gentleman for that clarification. Of course I am aware of which right hon. and hon. Gentlemen have put their names to the amendment. However, it is not a Government amendment. Perhaps I should refer to it as the Public Accounts Committee amendment. It seeks to open PUK's accounts to scrutiny by the Comptroller and Auditor General. As I said in Committee, PUK will be a risk-taking private sector body. It will have a majority of private sector investors who will expect a return on their investment. PUK will, of necessity, need to act commercially to raise finance and make a success of its business. That is a job for a Companies Act auditor appointed in the normal way for private companies. There has been some question as to the accountability for PH and PPP projects which will, as now, remain with Whitehall Departments and other public sector bodies that commission them. The National Audit Office has already reported on a considerable number of private finance schemes. In addition, last July the Treasury issued guidance on the standardisation of private finance contracts which make it clear that PH contracts should include an appropriate clause which will ensure appropriate NAO access. So I do not believe that there should be a problem with the NAO securing the access that it needs to PFI projects, although the matter has been raised several times during the debate. Any Government investment in Partnerships UK under the provisions of the Bill will come out of voted money, and so will be covered by appropriation, or soon by the resource accounts, which are also audited by the NAO. It is no different from other payments to the private sector by various Government Departments, so I do not believe that the Comptroller and Auditor General does not have the access that he requires to do his job effectively. I now turn to some other points that were made in the debate. I start with some more specific comments on the interest of the taxpayer in relation to the accounting in whole of Government accounts to which the right hon. Member for Haltemprice and Howden referred in his opening remarks. PUK will be accounted for in accordance with the guidance on the PFI schemes which has been reviewed by both the Accounting Standards Board and the Financial Reporting Advisory Board and has been incorporated in the "Resource Accounting Manual". In terms of accounting mechanisms it is fully covered and we have set out very clearly the way in which we intend it to be treated. It is difficult to believe that there should be any problem with that.

Oliver Letwin (Conservative, West Dorset)

Will the Minister give way?

Melanie Johnson (Labour, Welwyn Hatfield)

I should make some progress as we have spent a considerable time on this motion. Any financial provision to PUK will be out of voted money. As I said, the NAO can audit those sums. As my right hon. Friend the Chief Secretary has made clear, as a private company in a commercial environment, it would be entirely appropriate for PUK to have commercial audit arrangements. That means that the NAO should not have unfettered access to PUK's accounts. I hope that the right hon. Gentleman accepts that.

David Davis (Conservative, Haltemprice and Howden)

Although I do not expect a response from the Minister, I want to put on record that her judgment of what is the appropriate access for the National Audit Office is clearly different from that of the Comptroller and Auditor General. Amendment No. 16 was drafted by the National Audit Office on the basis of the Comptroller and Auditor General's judgment of what he needs. His judgment is obviously different from that of the Government.

Melanie Johnson (Labour, Welwyn Hatfield)

The right hon. Gentleman said that he did not expect a response, so I shall take up that generous offer and not give one. The hon. Member for Kingston and Surbiton commented on the objectives for managers and the objective of making the public sector more efficient. He should remember that the Office of Government Commerce is being set up to find £1 billion in savings through better procurement. The hon. Member for West Worcestershire (Sir M. Spicer) is not in the Chamber, but he asked about the limit of expenditure. I believe that I have answered that point. That limit was never the purpose of new clause 7, so he must have been confused when he asked his question. The hon. Member for Bury St. Edmunds (Mr. Ruffley) spoke about EU public procurement rules. Policy advice to Ministers is confidential, as the hon. Gentleman—who is a former special adviser to the Treasury—should know, but the Government, of course, will adhere to those rules. The hon. Member for Arundel and South Downs asked about the affirmative resolution procedure in the House. I explained that any changes to the limit would be subject to that procedure. I do not understand what the problem is with that. If the Government were to consider any changes to the limits, there would have to be a debate in the House. At present, the limits are set at specific sums, rather than being inflation-proofed. I think that that also covers the point raised by the hon. Member for Buckingham (Mr. Bercow), who is also absent from the Chamber. In conclusion, the process of procuring a PFI project under the European procurement arrangements will be just as it is now, but more tightly managed. There is no question that PUK's return, whether as a royalty or an equity, will affect the selection of the preferred bidder. Arrangements will be put in place so that that will be impossible. All bidders will make bids on the basis of the same information. As to where the guarantees appear in the accounting, I can tell the House that Government accounting rules apply to the guarantees for PUK in exactly the same way as they do for any other body. As I said in my letter—which I am delighted has been much pored over—all the relevant detail will appear in supplementary statements. Nothing will be hidden—a possibility that has exercised Opposition Members. I commend new clause 7, and the associated Government amendments, to the House.

INDEPENDENT BODY

Oliver Letwin (Conservative, West Dorset)

I beg to move, That the clause be read a Second time.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this, it will be convenient to discuss the following amendments: No. 1, in clause 5, page 2, line 41, leave out "the Treasury" and insert "the Independent Body". No. 2, in page 3, line 1, leave out "the Treasury" and insert "the Independent Body". No. 3, in clause 9, page 5, line 7, leave out "the Treasury" and insert "the Independent Body". No. 4, in clause 10, page 5, line 15, leave out "the Treasury" and insert "the Independent Body". No. 5, in page 5, line 17, leave out "the Treasury" and insert "the Independent Body".

Oliver Letwin (Conservative, West Dorset)

After the hors d'oeuvre of the previous debate, we now come to the main meal, the central feature of all our arguments over the Bill so far. New clause 1 has been moved, in the irenic spirit of compromise, to make the Government change their mind. We have been joined in that endeavour by Liberal Democrat Members. I hope that we shall garner support also from those members of the Public Accounts Committee who are present. If the Government do not accept the new clause, I am confident that, in due course, we shall garner support from many in another place, from all parties. When the Economic Secretary studies new clause 1, she will see that it has gone a long way to accommodate the valid points that she made in Committee. I hope that she will accept it. If she does not, I fear that the Government will be in the bizarre position of having to employ the Parliament Acts to force through a measure to achieve stable and transparent Government accounting that should be based on consensus. The new clause has attracted cross-party support in both Houses of Parliament. All hon. Members, of all parties, agree that transparent resource accounting should be implemented as quickly as possible, so it would be extraordinary if the Government had to railroad through the Bill as drafted because they were unwilling to accept an amendment that has commanded such cross-party support. Conservative Members, in conjunction with Liberal Democrat Members and members of the Public Accounts Committee, first signalled our concern about the matter addressed by new clause 1 on Second Reading. The Economic Secretary will know that we made very clear our unease that the Bill provides that the Treasury, rather than some independent body, should determine the definitions governing all the accounts set up by the Bill. Our attempt to draw attention to that matter on Second Reading can be found at column 581 of Hansard of 6 December. In repeated debates, we tried to draw the attention of the Standing Committee to the need for an independent body. At that time, we suggested a particular form for that body, to which we remain marginally attached. It is the form of independent body specified in new clause 1(2)(c), to which I shall turn in a moment. However, our main purpose in all the debates on this matter, on Second Reading and in Committee, was not to establish some deep-seated preference for the form of independent body that we were recommending—an independently formed national accounts commission. Our purpose, rather, was to bring to Ministers' attention the inherent conflict of interest in the public policy sense between a Government who are seeking, inevitably, to satisfy an electorate and are bound to present themselves, quite legitimately, in the best light possible, and their need under the Bill as drafted—without new clause 1—to be the monitor of the accounting standards against which their performance as a Government will, in part, be judged. We argued with irrefutable logic that there was a public policy conflict of interest for the Government to set the standards, accounting for themselves, according to their own standards, when they had the proper, democratic incentive to present themselves in the most favourable light. I say that our logic was irrefutable because I had the opportunity, in preparation for this stage of our debate, to read the Committee proceedings in which that point came up day after day. I do not think that the Economic Secretary can deny that there was an occasion on which she even took that argument head on. She said many things; she said some true things. Yet she never said anything that suggested that she had an argument against the fundamental proposition—shared, as I repeat, between my right hon. and hon. Friends, Liberal Democrat Members and members of the Public Accounts Committee—that there was a conflict of interest. Perhaps tonight we will, for the first time, hear a genuinely reasoned argument from the hon. Lady that refutes our fundamental proposition. Perhaps we will hear why the conflict of interest that we see does not exist, but I doubt it. I do not think that such an argument can exist, because our fundamental proposition is unambiguously true. However, I am prepared to be proved wrong on that point. If there is no argument against that proposition, and if there is a conflict of interest, how is it best addressed and will addressing it carry a penalty greater than any benefit to be derived? The Economic Secretary did not make that argument in Committee either. She did not say that she accepted that there was a conflict of interest and that that was a problem about working in a democracy. She did not say that she accepted that there was a deficiency in the proposals, whose cost in public policy terms would outweigh the advantage of addressing the conflict of interest. That would have been a reasonable structure for an argument. I do not feel so confident that we could have defeated it as I do that we could defeat any argument purporting to show that there was no conflict of interest. However, as I say, the Economic Secretary never put that argument either. I do not know what her argument would be; perhaps we will hear it tonight. I hope that if she refuses to accept new clause 1 tonight, we will hear her reasons. It would be by far the most powerful way in which she could justify such an attitude. I doubt whether we will hear that argument tonight, because if it can be heard tonight, it could have been heard in Committee. If there is an identified cost in public policy terms to addressing this conflict of interest, it surely would have been identified in the many months that have passed while the Government have been considering these matters. Resource accounting is not, after all, a newborn babe. It was first conceived four or five years ago. My right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) knows better than I when the previous Government first began to discuss it.

David Davis (Conservative, Haltemprice and Howden)

Six years.

Oliver Letwin (Conservative, West Dorset)

My right hon. Friend says six years, from a sedentary position. I should have thought that in six years, whatever the public policy cost of addressing this conflict of interest, it would have been identified. If it had been identified, given the merciless grilling that, to my shame, we gave the Economic Secretary in Committee, I think that she would have told us what that cost was and would have put her argument in those terms. I think that the Economic Secretary will probably not tell us this evening that there is no conflict of interest of the kind that we assert, or that there is one but the cost of addressing it is too great. I do not think that we shall hear either argument. What, then, could be the hon. Lady's argument for not addressing the problem addressed in new clause 1?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

May I caution the hon. Gentleman not to be too hard on the Minister? She said in Committee to the right hon. Member for Swansea, West (Mr. Williams): I am promising to continue to think about the matter…-[Official Report, Standing Committee A, 11 January 2000; c. 65.] Perhaps the hon. Gentleman will reflect on that. Does he think that the Minister, having promised to continue to think about the matter, is in a position not to advance arguments against new clause 1 but to accept it?

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman has spotted something which, in my perusal of the Committee proceedings, I overlooked. I am delighted that he did not. As the Minister promised to think about this, I may well be proved wrong and she will have thought sufficiently either to accept the compromise or to come up with one of the two arguments that I described. I remain slightly sceptical about the latter possibility. I attach my hopes to the former possibility—that the Minister has thought sufficiently to accept the compromise in new clause 1. We discovered in Committee that it is profitable to eliminate arguments in advance—at least, those that are not good. Therefore, I want to eliminate a third argument that the Economic Secretary might be tempted to bring up this evening if she intended to refuse to accept new clause 1. She might argue what she half began to argue, I now see, in Committee—that somehow or other it is impossibly inflexible for the Government if there is to be an external setter of the standards and definitions in the accounts. I say that she half began to argue that because what she argued in Committee was that by and large the Government were going to apply the standards set up by the accounting standards body. She pointed on several occasions to the long lists that had been prepared by the Treasury on her behalf, indicating the particular reporting standards that were going to be applied that had derived from the accounting standards body. The hon. Lady's line of argument was that those would be applied and there would be a few exceptional cases in which it would be necessary—she talked of necessity rather than desirability—to adapt the accounting standards of the accounting standards body, derived as they are for the private sector, when applying them to the public sector. I hope that I am not travestying her remarks by saying that that was the only argument that she used for supposing that it was not necessary or desirable to have an independent body set the standards. Taken at face value, that is no argument at all. The fact that there are only a few occasions on which it may be necessary to depart from the accounting standards body's reporting standards does not imply that it is not worth having an independent body deciding on which occasions it is necessary to depart from the accounting standards and on which it is neither necessary nor desirable to depart from them. There is no implication from one to the other. So the Economic Secretary's sole argument was no argument at all. To be generous to the hon. Lady, as I have tried to be, I think that she was trying to get at the idea that it would be insufficiently flexible for the Government if the Treasury was not in a position to determine for itself these few occasions on which it was necessary to depart from the accounting standards body's standards. That is the beginning of a recognisable logical form. It looks like an argument for the case; it has the right shape to be an argument for the hon. Lady's position. The problem is that it is not compelling because it does not acknowledge the force of the conflict of interest argument. The problem is mind-numbingly boring to most Members of Parliament and probably to most people sitting in the Chamber at present and certainly to most of our fellow countrymen. Nevertheless it is acute and profound. A working democracy needs transparent Government accounts that cannot be fiddled to present the Government as well as possible. If democracy is reduced to being an argument about whether the data presented are an accurate or inaccurate reflection of what is going on, democracy becomes a shouting match rather than a rational discussion.

Andrew Tyrie (Conservative, Chichester)

Does my hon. Friend agree that it is not merely whether the accounts are fiddled, but whether there is a perception that they could be fiddled? That in itself would be enough greatly to erode the value of any numbers.

Oliver Letwin (Conservative, West Dorset)

My hon. Friend is right. We are talking about the Caesar's wife phenomenon. Not only do the accounts need to be transparent, they need to be seen to be transparent. Nobody in their right mind will be confident—to put the case at its weakest—that the accounts are transparent if the people who are responsible for setting the standards, or rather for setting the deviations from the independently set standards, are the very people who have an interest in ensuring that the deviations occur when it is convenient for the Government, and do not when it is not.

Julie Kirkbride (Conservative, Bromsgrove)

My hon. Friend is an acknowledged expert on such matters. For those of us who are newer to the debate, will he speculate on how wide the Government could make the figures that would not apply if our amendment were accepted? Will he help us to understand just how wide their scope could be?

Eric Forth (Conservative, Bromley and Chislehurst)

What does Caesar's wife have to say about it?

Oliver Letwin (Conservative, West Dorset)

I shall not be by tempted by that intriguing sedentary intervention from my right hon. Friend. Instead, I shall answer my hon. Friend the Member for Bromsgrove (Miss Kirkbride). She is right to draw attention to the point that she raised. She is too polite to put it in these terms, but, in effect, she asked whether I was wittering on about a row of beans—a matter that need not concern us—or whether fundamental issues were at stake. The answer is that, abundantly, there are fundamental issues at stake. Before I return to my argument, I shall retail some of them for the benefit of the House. We are talking about whether the public sector pension funds—unfunded liabilities—are to be recognised as liabilities. Nobody knows the amount at present, but it is many billions of pounds. We are talking about whether the basic state pension liabilities are to be recognised as liabilities. Some assessments suggest that the present value of those liabilities may be about £300 billion. We are talking about whether the PFI liabilities—an unquantifiable number of billions of pounds over the period—are to be on the balance sheet as liabilities. We are talking about whether the liabilities of new bodies and of half-extraneous, non-departmental public bodies will be on the balance sheet, if they are in the form of contingent guarantees. We heard an example of that this evening, when the Economic Secretary failed to tell us—because she does not know—whether the assets or liabilities of a body she is creating under the Bill will be accounted on the balance sheet. So far, I have totted up a figure that is probably broadly equivalent to the gross domestic product of this country. That is the scope of the lack of clarity as to how far things will be accounted on the liability side. However, I have not mentioned the biggest question. That relates to those things that are, or are like, benefits. Public concerns and private companies typically account for certain kinds of sickness benefit, for example. A question arises that is deeply material to public policy and to the whole structure of accounting: should disability benefits, in some form, be on the liabilities side of the whole of Government accounts, or should they not? That is an enormous potential sum. On the assets side, we are talking about how far Government accounting ultimately includes all sorts of contentious items, some of which are currently included while others are not such as schools, hospitals or large elements of the Ministry of Defence estate. How are the latter to be accounted for? What does one do with tanks or nuclear missiles? We then come to revenue and expenditure and the notorious question of whether the working families tax credit is a tax credit, and hence a negative tax, or a piece of public expenditure. Which side of the income and expenditure and cash flow statements should it be on? There are many similar items—not least because the Chancellor of the Exchequer has shown us that he intends to expand, if possible, the scope of tax credits, perhaps widely. It is not inconceivable that, without an independent body, most of the non-pension public expenditure of the benefit sort might be transferred to being a negative tax. Some £70 billion a year could be removed from both sides of the income and expenditure account. I hope that my hon. Friend the Member for Bromsgrove is beginning to get the picture. We are not talking about a row of beans. We are talking about the shape of the whole public economic system. We have not the slightest idea of what the Treasury will decide when making critical decisions about the definitions that will govern the public policy debate on most of the items that are most contentious in that debate. That is a sorry state of affairs.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is well aware that I share many of his concerns. However, I caution him not to overstate the case. That sorry state of affairs has existed for many years. The Bill is about modernising Government accounts. The Government talk to us about modernising government, so surely the argument that the Conservatives and Liberal Democrats should be making is that the Government should take this opportunity to modernise the public finance system properly and thoroughly.

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman is right. It is a sorry state of affairs, but that is not the fault of the Labour Government; it is the fault of our predecessors in Parliament and in government, of both parties over a prolonged period.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

All parties.

Oliver Letwin (Conservative, West Dorset)

I hope that the hon. Gentleman will forgive me—all parties, of course. It is the collective failure of our democracy to address the issue since Gladstone took a large step forward. Broadly speaking, Gladstone took that step and the rest of us—collectively—held our breath from that date to this. The hon. Gentleman is right. In effect, we are saying that a glorious and golden opportunity is being missed to put the matter right.

Bill Cash (Conservative, Stone)

Will my hon. Friend give way?

Andrew Tyrie (Conservative, Chichester)

Will my hon. Friend give way?

David Davis (Conservative, Haltemprice and Howden)

Will my hon. Friend give way?

Oliver Letwin (Conservative, West Dorset)

That is more than a richesse. I give way to my right hon. Friend the Member for Haltemprice and Howden.

David Davis (Conservative, Haltemprice and Howden)

That was a rush of assistance to my hon. Friend. I agree, as I said in Committee, that the matter is one for which the blame—if that is the right word—falls on a series of successive Governments of all parties, but there is an acute problem at present. My hon. Friend touched on the tax credit issue and the calculation of tax burden. If the amendments proposed by him and the hon. Member for Kingston and Surbiton (Mr. Davey) are accepted, it is almost certain that the Government's judgment on the calculation of tax credits would be overturned. Every other western country takes a different stance on that matter, because when there is no tax liability, a payment is made. That is the test—whether it is a payment rather than a negative tax. The tax credit system fails that test. As a result, it is almost certain that, were such an independent body to exist, the Government would have to account in the same way as the rest of the Organisation for Economic Co-operation and Development. In that sense, there is a large price tag on the amendment, which makes it much more difficult for the Government to accept.

Oliver Letwin (Conservative, West Dorset)

I was trying not to prejudice the chances of the Minister accepting the amendment by drawing out the implications that, I am afraid, my right hon. Friend has with great perspicacity made abundantly clear. He is right to say that the position has been made significantly worse by the fact that there has been an accounting fiddle, if I can put it in those terms without being unduly prejudicial. 8 pm However, if I had to judge, I would say that the biggest cause for concern is not the Government's fault. It is something that goes back a long way and has plagued the public policy debate to the extent that it has distorted the entirety of our policy on the matter. That concern is the treatment of pensions. I believe profoundly that an independent analysis of the definitions would bring pension liabilities in some way into recognition, whether as a note or as an item in the balance sheet. If those liabilities were included in the accounts, the nature of the discussion on social planning and social provision would change.

Bill Cash (Conservative, Stone)

Does my hon. Friend agree that there is another dimension to the subject that may have been considered earlier in the debate or when the Bill was in Committee? I refer specifically to the interaction between our public accounts and the accounts of the European Union. Just in case anyone should be surprised that I raise the matter, I note that my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the Chairman of the Public Accounts Committee, rightly surmises that that is an issue of enormous importance. If there is a fiddle, such as that which occurred with the convergence criteria, and if the pension liabilities are not properly taken into account, we cannot make any useful complementary analysis of what is happening in this country vis-a-vis the economic rules established under Maastricht and what is going on in other countries. I have every intention of exploring that point a little further, but will my hon. Friend enlighten me on whether that subject has been thoroughly investigated—or will I have an opportunity to do that this evening?

Oliver Letwin (Conservative, West Dorset)

My hon. Friend has cheered me up no end. I had thought that this debate—not least my speech—might be dull, but now I know that it will be lively. The subject was not debated in Committee and I look forward to hearing his remarks on it. The Bill, wide though its scope is, does not extend to forcing our comparator countries into the paths of righteousness on accounting liabilities. The problem of comparability might arise even if we cure the accounting problem here. None the less, I look forward with bated breath to my hon. Friend's analysis of these important matters. If the Economic Secretary wants to expand the argument that she half began to make in Committee—that it would be unduly inflexible if the Government were forced into a straitjacket by an independent body and were unable to decide on the deviations from the accounting standard practices that were proposed by the accounting standards body—she should resist that temptation. She should resist it because it would be to misunderstand what the ability to play with definitions does to Government. Part of our argument is about the rights of a democracy as represented in Parliament. My right hon. Friend the Member for Haltemprice and Howden is principally concerned with those issues, and rightly so as Chairman of the Public Accounts Committee. However, part of our argument—we have this in common with those on the Liberal Democrat Benches—is about the effect on the Government's making of policy. It is not to their advantage, except in the very shortest term—a few weeks or a few months—to put themselves in a position where they may be tempted to conceal from themselves the real effects of their actions. They can do that by adjusting accounting definitions so that they purport not to be doing what they are in fact doing. That is not in the long-term, or even medium-term, advantage of the Government because they will be doing what they are doing. In the end, pension liabilities will exist whether they are on the balance sheet or not; the Government will have obligations under the PFI whether they are on the balance sheet or not; public sector pensions will or will not be funded; and there will be expenditure under the working families tax credit. All those things will happen. They are economic facts that will hit taxpayers, the macro-economic system, interest rates and, ultimately, the Government.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

After the election.

Oliver Letwin (Conservative, West Dorset)

It may be before or after an election, but those facts will certainly hit the Government at some time. That is not in the interests of government as conceived narrowly. However, I accept that the hon. Gentleman is right. If a Government are just this side of an election that they think they will lose—I wonder whether the Government think that they will lose the next election—they might try to conceal from themselves, and from their successors, the effects of actions that will be visited upon their successors.

Bill Cash (Conservative, Stone)

I am a mere novice in this subject, but my hon. Friend made a bold and justifiable remark on the volumes of moneys that would be involved if public sector pensions, state pensions, PFI liabilities and contingency guarantees were aggregated. He said that that was equivalent to the whole gross domestic product of this country. I am developing my thinking on this issue, so I wish to ask him a simple question. He has referred to the integrity of the accounts and democratic accountability, so is the calculation of the 3 per cent. deficit of GDP in relation to the Maastricht criteria a figure that could be distorted by eliminating the items that he mentioned from the calculations? We might get a completely different figure that might well suit the Prime Minister, come July, if he makes an announcement on the amount of money that he will make available in the public sector.

Oliver Letwin (Conservative, West Dorset)

As ever, my hon. Friend is eagle-eyed as to the implications of Maastricht. He is right that such accounting changes could have a significant impact on our deficit and its relationship to the Maastricht rules. When I tried to illustrate for my hon. Friend the Member for Bromsgrove the scale of the implications, I was consciously confusing stock with flow. Some of the items that I mentioned are flow, or current spending, items; some are the present values of long-term liabilities, and some are assets. I tried to give a sense of the scale by adding them all up and wondering what they might all amount to. Once the figures have been so illegitimately added together, I do not know whether they would come to half, one, or one and a half times GDP. However, it would be of that order of magnitude. In practice, on a flow basis and in terms of the annual deficit, the figure is nothing like that big. As a consequence, it is unlikely—although it is possible—that adherence or failure to adhere to the Maastricht criteria on a given occasion would be decisively influenced by such matters. However, public policy choices made in ignorance of the real liabilities could lead you to fail or succeed in meeting Maastricht or other criteria.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

Order. I am aware the that the hon. Gentleman is responding to an intervention from a Back Bencher, but he should address the Chair.

Oliver Letwin (Conservative, West Dorset)

I apologise, Mr. Deputy Speaker. Moreover, you were kind not to mention the fact that I may have departed to some degree from my observations on new clause 1, to which I speedily return. I was trying to argue that the Economic Secretary should resist the temptation to complain about the inflexibility that might be imposed on Government by an independent body's setting the definitions. She should recognise that, although in some particular circumstances—the hon. Member for Kingston and Surbiton (Mr. Davey) and I were beginning to expose them—there might be a political advantage in cooking the books, shifting the definitions is dangerous for Government when conceived as something that goes on for a year or so, as well as for the operation of our parliamentary democracy. It is just as dangerous for Government because they have terrible difficulty knowing what is going on. That is their biggest difficulty. Most of the time, most people in Government do not know much about the effects of their actions or the circumstances in which they are operating. The last Administration discovered much of what was happening in the miners' strike by turning on the television in No. 10 Downing street. Governments are often ill informed and find it difficult, however brilliant their Ministers or officials, to get a grip on what is really going on with the immensely complicated beast of public spending, tax and the economy. If Government allow themselves to be flexible, they end up being confused about the effects of their own actions and making decisions that they did not intend, which often rebound on them. It is not true that there is no conflict of interest. There is, because short-term interest is at stake in fiddling the figures from time to time. It is true that there is no long-term conflict of interest. If the Government view the matter from enlightened long-term self-interest, they will accept the straitjacket imposed by new clause 1, not unwillingly but joyously—seeing it not as a restriction on flexibility but as a way of ensuring that they know what is going on in the multitude of affairs over which they have control. I want next to explain the differences between new clause 1 and our amendments in Committee, to demonstrate to the Economic Secretary how far we have gone to accommodate the points that she made. The Minister said in Committee that she was concerned about the prospect of a national accounts commission, and argued that there were already bodies sufficiently well equipped to deal with accounting standards. Subsections (2)(a) and (2)(b) recognise that such bodies exist. We have offered an olive branch to the Minister by abandoning our preference—which we shared with the Liberal Democrats and the PAC—for a new, independent national accounts commission and have opted instead for the existing body. Any practical difficulties otherwise associated with an independent national accounts commission thereby evaporate. No extra costs would be entailed. I am sure that the Accounting Standards Board, if asked, would be perfectly willing to take on that extra task without charging the Treasury a huge amount of money. The ASB has every possible expertise. It is not lacking in any kind of knowledge or skill required. We have a body that exists, would not be expensive to run and knows what needs to be done—and we are saying that will do nicely. We have gone further. As we recognise that the Economic Secretary might think that, in the world of increasing global convergence, it would be retrograde to insist on standards in the UK, we have offered a second option. The International Accounting Standards Committee or some other such international body could be chosen in place of the Accounting Standards Board.

Bill Cash (Conservative, Stone)

My hon. Friend is aware that accountancy proposals and directives have been compiled and applied in respect of the European Union. I wonder whether he has taken account of those directives in relation to the other international bodies to which he referred and the criteria applied there.

Oliver Letwin (Conservative, West Dorset)

My hon. Friend will not be surprised to hear that my personal first choice for a body would not be a European-level body. Mirabile dictu that he should say it, but my hon. Friend is right. That could be a solution encompassed by subsection (2)(b). If I had to accept that as a means of getting the Minister to concur with the general proposition in new clause 1, I would do so. We recognise that the Economic Secretary might have difficulty with the particular shape of the body we proposed. She gave us some cause for concern, referring on several occasions in Committee to the Financial Reporting Advisory Board. She thought that body already did a good job of determining deviations from standards set by the ASB. As a third option, we have redesigned our proposal by making it more general. Subsection (2)(c) expressly allows for a new form of the FRAB as an alternative to our national accounts commission. 8.15 pm Surely the Economic Secretary's resolve on the technical issue must crumble at this point. Surely she cannot maintain that the body she argued in Committee was doing a good job cannot do the job. If she accepts new clause 1, all she need do is take the FRAB, re-establish it as a new body, ensure that all its members are appointed solely on the basis of their expertise in accounting practices and make the change that those people cannot be dismissed by the Treasury or any Minister. That could be done in a trice. We have tried to provide in subsections (2)(a), (2)(b) and (2)(c) the widest possible latitude to the Minister and the Treasury in implementing any form of independent body. The only thing they all have to be is specified in subsection (1)—independent. The Minister cannot argue that there is a conflict of interest because there is not—and she has not tried to argue that. The Minister cannot argue that there is a conflict of interest but public policy cost outweighs it because that is not true—and she has not tried to argue that. The Minister should not argue that which she was half tempted to argue—that the proposal would be too inflexible for Government—because flexibility will be an advantage in the medium and long term. If the Minister is compelled to accept the logic of an independent body, and given that we have offered every form of independent body that anyone could imagine as a range of options—including the body to which she referred to first and second as an option—I am genuinely stumped as to why she should object to new clause 1. I draw attention to the amendments that flow from new clause 1, particularly for the benefit of hon. Members who were not in Committee, and to the scope of the discretion restricted by the application of new clause 1 through amendments Nos. 1 to 5. Clause 5(2) states: Resource accounts shall be prepared in accordance with directions issued by the Treasury. No limitation, no control, no transparency—entirely unfettered discretion to decide how reporting will be done. The Economic Secretary repeatedly informed hon. Members on Second Reading and in Committee that it was the Government's intention merely to amend existing standards as necessary for the public sector. That is not reflected in subsection (5)(2) or any Government amendment or new clause tabled in Committee or now. She has never sought to limit the Treasury's discretion in any way. By replacing the words "the Treasury" with "the Independent Body", we are making up for that gross lack. That is exactly how we have gone about amendments Nos. 2, 3, 4 and 5—each of which replaces the Treasury, as the body with total discretion to decide its own accounting standards, with the independent body. I refer to another element of great importance, to which we shall return later this evening. There is no doubt that the independent body that sets the accounting standards will be the natural locus of decision making on the form in which the performance measures are to be embodied. The Comptroller and Auditor General is a natural office for enforcement, but the natural body to decide what performance measures will measure the policies that the Government have announced is the independent body that we recommend. That would solve two problems at a stroke: the conflicts of interest that would otherwise muddy Government accounts, and the measurement of performance by the Government of the Government. If the Minister sensibly accepts the new clause, that will represent a great improvement in the operation not only of parliamentary democracy, but of Government. If she does not, we shall argue that our friends and colleagues of all parties in the other place should seek to obtain the result that I mentioned at the beginning of my speech and send the new clause or a similar measure back to the House—for as long as is necessary and no matter how arduous that is—to draw the Government's attention to the fact that they would be using a parliamentary majority and the Parliament Acts to achieve a result that would be wholly at odds with the proper functioning of our democracy.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Let me begin by discussing how this issue is likely to be dealt with in the other place if the Government reject the new clause—which is where the hon. Member for West Dorset (Mr. Letwin) ended. Although I have been a Member of the House for a only short time, it is clear that these events are almost unprecedented. I have served on a number of Finance Bill Committees, as well as on the Committees that brought independence to the Bank of England and set up the Greater London Authority. The Liberal Democrats often found common cause with the Government—with whom we voted fairly often against amendments tabled by the Conservatives—but that has not occurred on this occasion because the issues to which the Bill gives rise go above party politics: as many members of the Committee said, they are constitutionally important, so taking a party line and playing party politics is not appropriate. Conservative Front Benchers and Liberal Democrats have together tabled the new clause, and I pay tribute to the ingenuity of the hon. Member for West Dorset for dreaming up a measure that gives the Government so many options and so many ways out of the predicament in which they have managed to land themselves. Their lordships will read our proceedings and note that the new clause is wide-ranging and that Members of different parties have come together to support it. Not only Liberal Democrat and Conservative peers but independent-minded Labour peers and Cross Benchers will place some weight on the fact that we are witnessing a rather unusual process, and will recognise why we have agreed on it. As the hon. Gentleman said, when they recognise that, they will act accordingly to uphold Parliament's powers and rights in relation to Government accounts.

Oliver Letwin (Conservative, West Dorset)

I thoroughly agree with the sentiments that the hon. Gentleman is expressing. Does he agree that we are also considering Executive control? This is a case not of the Labour party voting in a certain way but of a Government using their majority in the House of Commons to assert Executive power. We are looking to our friends and others in the other place to reassert the power of Parliament against the Executive.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is exactly right. It is important that those in the other place realise that that is what we are about, because, as he said, they may have to fight hard and be prepared to push the Government to the wire. We should give the Government due warning that if they remain completely inflexible, we shall encourage our colleagues in the other place to stare them in the face and challenge them to invoke the Parliament Acts to get the Bill through. As the hon. Gentleman said in a previous debate, the Government have legislated hastily—perhaps because they want to make progress with the Partnerships UK proposals—but it should be borne in mind that such a delay would substantially undermine aspects of their programme. Neither he nor I want those aspects to be delayed, even though we have mentioned our concerns about them. If that is the unintended effect, we shall have to bear the cost, because the principles are so important: I believe that we are prepared to do so to win through on this key issue.

Oliver Letwin (Conservative, West Dorset)

I am grateful to the hon. Gentleman for giving way again. His remarks are of the greatest importance because they will be read by those in the other place. With that in mind, does he share my experience, which is that some Labour Members who shall remain nameless have said privately that they have considerable sympathy with our position? For the sake of causing them no embarrassment, I shall not name those hon. Members, but is the hon. Gentleman also aware that one or two have said in open court—on television—that they have some sympathy with our position?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is right. I have had similar conversations with Labour Members, and I am tempted to suggest that even Ministers have some sympathy with our arguments, although they have not put that on the record. When we were debating clause 5 and an amendment similar to new clause 1 in Committee, the Minister said that she was open-minded and would think about the issue. She made no promises or guarantees, but she was at least prepared to think about it, and I like to believe that that is because she and her Treasury colleagues have some sympathy with our case. The Chief Secretary spent many years in opposition and he is probably well aware of the frustrations felt by an Opposition trying to do their job and hold the Executive to account without having the proper information. On Budget day and when the public expenditure plans are published, we are given figures. We have great difficulty in understanding or believing what the Government are trying to tell us, so we cannot do our job properly. That is the crux of the issue. If we vote to establish an independent body, we will improve the way in which individual MPs on both sides of the House can do their jobs, not only on macro-issues of public spending but on constituency spending issues. With an independent framework for accounts, we will be able to see more clearly what is going on and—most important—to have faith in the figures that purport to show us what is going on.

Oliver Letwin (Conservative, West Dorset)

Does the hon. Gentleman agree that, oddly, the situation that he so vividly describes will worsen if the Bill is passed without the new clauses and amendments? Members of this House and the other place will then have before them a balance sheet and details of cash flow and profit and loss, and will think that they understand what is going on as we do not because we do not have such clear information. They will not in fact know, however, because they will not know whether the definitions on which their understanding is founded are fair and consistent.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is trying to push his argument slightly too far. I want the House to be in no doubt that Liberal Democrat Members believe that moving to resource accounting and budgeting is a major step forward, and that the information will assist us in our work. The hon. Gentleman is right to say that the information will come with the same caveats and problems as all the information that we have received from previous Governments, as it will be the Government who set the definitions and frameworks. However, the quality of the information will be better. It will not be perfect, and that is why new clause 1 is needed, but the hon. Gentleman goes too far in suggesting that we will be in a worse position if the Bill is passed.

David Davis (Conservative, Haltemprice and Howden)

I had not intended to participate in this part of the debate, but the hon. Gentleman's point strikes me as a little doubtful. We all agree that resource accounting, at its broadest, will be a major advance in the way that the country is run. However, we should not ignore that, in moving from what is effectively a cash system of accounting, which is hard to manipulate, to a system that involves many depreciations and other considerations, we are opening up judgments that will, without the new clause, give the Government more scope for manipulation, and therefore for corrupting the benefit that we all desire.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I take the right hon. Gentleman's point that there is a trade-off between the potential for manipulation and the fact that we will have so much more information. The problem with the existing cash accounting system is that it is almost meaningless, and the data that we have make it incredibly difficult to analyse what is going on in Departments. The extra information and improvements that we will receive through resource accounting and budgeting, albeit with the problems that we are debating, are of such an order that the Bill is a step forward. That is why we have been supportive of the move and have always tried to persuade the Government that accepting the new clause and the amendments, which have been jointly tabled by Liberal Democrat and Conservative Members, is in their interests and follows the logic of what they are trying to do.

Oliver Letwin (Conservative, West Dorset)

I am grateful to my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) for intervening. I wholly accept the point made by the hon. Member for Kingston and Surbiton (Mr. Davey) that the move to resource accounting is overwhelmingly important and that we should not resist it in any way, but does he agree that, if the new clause is not accepted, not only will a golden opportunity have been missed, but until the problem is corrected, the situation will paradoxically have moved backwards? That would be a tragedy. It does not mean that there is an argument for not going ahead with resource accounting—

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. Since I entered the Chamber a few minutes ago, I have noticed that interventions are extremely long. We cannot have such long interventions.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I understand the point that the hon. Member for West Dorset makes. New clause 1 is designed to deal with the potential danger about which we are both worried. Resource accounting and budgeting brings a distinct advantage. When the hon. Member for West Dorset introduced the new clause, he explained how independent bodies that already exist in the UK and abroad, and bodies that could be devised, would all fit the terms of the new clause.

George Stevenson (Labour, Stoke-on-Trent South)

I have listened to the debate with great interest, although I was not a member of the Standing Committee, and I have heard the forceful arguments that have been advanced. As I understand it, the proposed independent body would have the power to move the goalposts if it wished to do so. If that happened, I assume that it would be accountable to no one, whereas if the Treasury had that authority as the Bill stands, at least it would be accountable to Parliament. Do I misunderstand the position and, if so, can the hon. Gentleman help me?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

As we argued in the Standing Committee that established the independence of the Bank of England, the great advantage of an independent body is that its moves are transparent and public. Through that transparency and openness, accountability is improved. The problem that we seek to resolve by establishing an independent body is that the Treasury is often not accountable for its actions on matters such as setting accounts, because it is opaque: it does not report properly to Parliament about what it does. One finds out years down the line, if at all. Accountability can be exercised in a meaningful way only if those who make the decisions are forced to publish their decisions. Because the independent body would be a separate body, and would have to publish its recommendations and make it clear to Parliament and to the public what it wanted the Government to do, accountability would be increased.

George Stevenson (Labour, Stoke-on-Trent South)

I am grateful to the hon. Gentleman for giving way again. Even with his assistance, I am a little more confused than when I asked the question. Is not his response to my intervention a criticism of the procedures of the House, rather than an exposition of the principle of which he and the hon. Member for West Dorset (Mr. Letwin) have been trying to convince the House? Is it not more important for us to consider the procedures of the House to achieve accountability, rather than setting up a separate body that is not accountable at all?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am grateful to the hon. Gentleman for his comments. The cause of reforming the procedures of the House is dear to my heart. My hon. Friends and I tabled an amendment which unfortunately was not selected—for good reasons, no doubt—to set up what we called a resource estimates commission to report on the procedures of the House when it considered the Budget and to make recommendations for improving those procedures. The Select Committee on Procedure, of which I used to be a member, made recommendations along those lines. It proposed an estimates office to provide hon. Members with the information that they would need to scrutinise the Budget properly. I entirely agree with the hon. Gentleman on that point. My criticism was not of the procedures of the House, but of the way in which Whitehall works. Often Whitehall is not open and does not tell Parliament what it is doing in the people's name and with the people's money. Unless we can be reassured about the accounting standards and the framework to which it must adhere and on which it must report to the independent National Audit Office, there will always be a suspicion in the minds of hon. Members and of the public that some skulduggery has occurred. It is that perception that is the problem.

Bill Cash (Conservative, Stone)

The amendment refers to the functions assigned to the body by the Bill. Those are not specified in subsequent amendments—perhaps the relevant amendments were not selected. That could be redressed in the other place if the matter is taken forward. Accountability and its relation to the functions of the independent body is another matter. Perhaps the body would be similar to the Audit Commission. To a certain extent, I share the view of the hon. Member for Stoke-on-Trent, South (Mr. Stevenson) that the matter could be refined in future debates.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I would be worried if it were refined in the way in which the hon. Member for Stoke-on-Trent, South suggests. As I said earlier, the hon. Gentleman and his colleagues rightly gave the Bank of England independence to set interest rates. He supported that. That step improved accountability for monetary policy because it set a clear, publicly set goal for the independent Bank of England to undertake monetary operations on a daily basis and to try to hit the inflation target. The Monetary Policy Committee's actions are recorded in minutes. The Governor of the Bank of England appeared before the Treasury Committee today. My colleagues and I asked the Governor, the Deputy Governor and other members of the Monetary Policy Committee questions that held them to account. That structure has massively improved accountability in the way in which monetary policy is made. A similar framework for setting accounting standards would likewise improve accountability. There has never been accountability for setting standards for Government accounts. To my knowledge, there has never been a debate in the House about the directions that the Treasury gives Departments.

George Stevenson (Labour, Stoke-on-Trent South)

I do not wish to be a nuisance, but I am sure that the hon. Gentleman wants to help me to solve my dilemma. He refers to the Monetary Policy Committee, but I am not sure whether we are comparing like with like. The House sets the terms of reference for the Monetary Policy Committee. If I understand the arguments for the independent body correctly, however, it will change the accounting principles if it believes that that is right, and will be accountable to no one. Surely there is a big difference.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I do not accept the hon. Gentleman's view. The House is considering a Bill that would establish the framework for the independent body, which will therefore always remain accountable to the House and be subject to the Select Committee procedure. Just as the Monetary Policy Committee is accountable to the Treasury Committee, the members of the independent body could be brought before the Treasury Committee or the Public Accounts Committee and held to account for their actions. Accountability would be greatly enhanced because those actions would for the first time be transparent, public and open.

Howard Flight (Conservative, Arundel and South Downs)

There is a close analogy between the independence of the Bank of England in setting interest rates and the subject of our debate. The Government acknowledged the impossible conflict of interest that arises when Governments fix interest rates, and weighed the short-term advantage of elections against the long-term advantage. The Chancellor made his decision to escape that conflict of interest, which is analogous to that which exists when Governments determine their accounting policies.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is right. When we debated the matter in Committee, I made that comparison. I also made an analogy with the BBC. There is cross-party consensus that politicians should not have their fingers on the BBC's broadcasting policies and approach. It would be improper. The Government's approach must be at arm's length. Some public policy functions, for example, public broadcasting, setting interest rates, and setting accountancy standards for the public sector are so important that we must be reassured that they are removed from the party political debate. The effects of some of their decisions last not just for a Parliament, but for decades—indeed, for centuries. We heard from the hon. Member for West Dorset about the pension liabilities. Some of these issues that arose from the matter of accounting standards are just too great to be left to political Ministers who happen to be in office for a short while. 8.45 pm The amendment gives the Government a wide choice of bodies that they could select to be the independent body. In Standing Committee, the Minister seemed to go down the route of preferring the Accounting Standards Board. She said that the Government do not believe that a separate standard-setting body is needed, not least if it implies a body that will be in competition with the Accounting Standards Board. The Government are content to follow the standards issued or approved by the ASB, which already apply to all private and many public sector bodies.—[Official Report, Standing Committee A, 11 January 2000; c. 60.] The Minister was right. I wish she would be prepared to extend the remit of the ASB and give it the independence for which we are arguing in the new clause, which is a vehicle that would enable her to do that. The ASB already has a sub-committee, the public sector and not-for-profit committee, which looks at many of these issues. Its remit is not as wide as would be required by the sort of body we are talking about in the new clause, but its existence shows that the Accounting Standards Board has already considered some of these issues, and has some expertise and skills in this area. Members of the ASB have sat on the Financial Reporting Advisory Board. If the Minister believes that we need a single standard-setting body, the ASB is probably the sensible one to choose. Other opinions have been expressed, both here and outside. The Chartered Institute of Public Finance and Accountancy, in a report entitled "Setting Accounting Standards for the Public Services" a few years ago, thought that the sub-committee of the ASB was still too narrow, and favoured a totally new body, which it called the Public Services Accounting Advisory Board. However, it was not quite advisory in the way the name suggests, as CIPFA proposed that there should be a requirement on statutory bodies to follow the board's recommendations. Therefore, I believe that "advisory board" was an inappropriate title for CIPFA' s suggested model. The point is that there are many views about the sorts of bodies that could take on this role, both natural evolutions from the ASB and other bodies that already exist, such as the Financial Reporting Advisory Board. Therefore, the Government have plenty of bodies that they could turn to. They have to give us good reasons, as the hon. Member for West Dorset argued, for not going down this road. They failed to do so in Committee, which was a shame. I return to my point about the importance of standard setting and why this issue should be seen on a par with setting interest rates and with broadcasting policy. It is because it goes not just to the heart of the financial management of the public sector, but to the heart of the quality of all decision making by Ministers throughout Whitehall. The hon. Member for West Dorset talked about how Ministers are extremely busy and often do not have to hand all the information about what is going on in their own Departments. He is clearly right. Both by the activities of the hon. Gentleman's party, through privatisation, and now through the activities of the Government, with devolution, the leviathan state is being trimmed.

David Davis (Conservative, Haltemprice and Howden)

Divided.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Liberal Democrats would totally disagree with the right hon. Gentleman about that. We believe that the devolution process is helping to ensure that the United Kingdom remains a united kingdom, and that it is assisting better decision making, because it is taking decisions away from Ministers who already have too much to do in this place. Our proposal would help to transform the leviathan state. It would help ever-busy Ministers, who do not have perfect information at their fingertips, by ensuring that the information with which they were provided was transparent and consistent. It would also ensure that they and their civil servants did not spend time worrying about changing depreciation rates and changing accounting standards, because that would be a given. Instead, they would be able to focus on what they should be focusing on: policy, policy making, making better decisions, and ensuring that the taxpayer is given better value for money.

Oliver Letwin (Conservative, West Dorset)

After popping out for a sandwich, I reflected on the hon. Gentleman's answer to an earlier intervention. Does he agree that the answer to the comparison with the private sector advanced by the hon. Member for Stoke-on-Trent, South (Mr. Stevenson) should, in fact, be that directors should set their own accounting standards because they are accountable to shareholders, whereas accountants should not because they are independent?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I shall deal later with that wider issue, and with the parallel that the hon. Gentleman seeks to make; but I am sure that the hon. Member for Stoke-on-Trent, South (Mr. Stevenson) appreciates the power of his intervention. The hon. Member for Stoke-on-Trent, South also raised the issue of the procedure of the House with regard to Supply. It is an important issue in the context of accounting standards. As the hon. Gentleman and I seem to agree, the procedures governing Supply in this place are, to say the least, inadequate: they are completely outdated, and effectively mean that the House allows just three days' debate on the subject. Moreover, often no amendment has been tabled to change the proposed spending plans, and the days tend to be taken up with Select Committee reports. Unfortunately, that rarely involves discussion of departmental spending plans. It is left to the PAC to do the real job; however, that is ex post rather than ex ante. Partly because of existing procedures and partly because of customs that have grown up, the House and its Select Committees do not do their job in scrutinising supply. That is analogous with, and has the same effect as, the problems that we are discussing in respect of accounting standards, because, again, it lowers the quality of decision-making. Ministers do not have to come to the House and fully defend their budgets, and the hundreds and thousands of decisions that Departments make about those budgets. If Ministers had to do that, they would have to be properly briefed. If they had to be properly briefed, their civil servants would have to ensure that they too were properly briefed, and that questions about their budgets were fully explored with Ministers. I believe that the dynamic that that would create, leading to a reform of estimates procedures, would make Ministers pay more attention to their budgets—that, indeed, Parliament and their civil servants would require them to do so—and that such a hands-on approach would enable them to spot problems. It would form part of the process enabling Ministers to root out poor decisions in respect of value for money for the taxpayer. I think that, if Ministers had such responsibility, there would be far better outcomes in regard to the money that the House votes to the Government through taxes. The parallel with the supply process is clear. I think that if we could improve supply procedures—I suggested the establishment of a resource estimates commission—and the way in which accounting standards are set, we could make a second leap forward in regard to the quality of policy-making and fiscal policy generally. I describe it as a second leap forward because the first leap forward relates to resource accounting and budgeting. If we can get the supply procedures right, and if we can get the accounting standards-setting process right, I think that over quite a long period—10, 20 or 30 years—we shall see far more effective public spending. That may mean that we can afford to do more public spending, or to reduce taxes. That choice will be open to the Government of the day. What a wonderful choice it would be, arising from the reform of procedures of the House and accounting standards setting. The hon. Member for West Dorset tried to tempt me to talk about the conflict of interest when the Government set their own accounting standards. He is right. There is clearly a conflict of interest. It parallels the conflict of interest that would arise in the private sector if company directors could set their own accounting standards. A shareholder would not be happy with that. Equally, members of the public and hon. Members should not be happy with the Government proposal to set their own accounting standards. The hon. Gentleman speculated on the reasons why the Government are prepared to live with that conflict of interest. He got close to their key concern when he said that, with a body such as the Accounting Standards Board setting accounting standards, the system might be seen to be inflexible. I am sure that civil servants in many Departments may be slightly worried that there could be slight delay in changing accounting standards that they think are genuine, rational and necessary for a new policy, or a new area of Government activity, for example, if they had to wait until the ASB had given its approval. Potentially, that might involve a slight cost, but how large will it be? How often will it occur? As the hon. Gentleman implied, will there always be a cost? Will there not sometimes be a benefit? Having some inflexibility over setting accounting standards seems quite a good idea. Surely, what we want from accounting standards is consistency and fixity. We do not want them to change the whole time. That would be totally inappropriate for such an important part of the financial system. Therefore, the argument that the Government could use against the measure seems weak and could be used against them.

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman is doing an important job in disinterring the internal logic of inflexibility. Does he agree that policy inflexibility is another type of inflexibility that the Government might be worried about? An ostensibly beneficial economic effect might be thought to be prevented by a rigid accounting system simply because it exposed things that the markets, for example, reacted to irrationally. What is the right answer to such a concern?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Given this country's fiscal position, I would have thought that more transparency over our accounts was beneficial. Presumably, the hon. Gentleman wants me to speculate on a circumstance where greater transparency would not be beneficial. That may lie behind the Government's arguments, although we have not heard them say so. We might have to pay a price. I do not suggest that there is no cost to greater transparency. There is always potentially a political cost to the Government of the day. We have had that debate more generally with the Freedom of Information Bill, which is before the Houses of Parliament at the moment. When one considers such costs, one has to examine the wider picture and whether the benefits far exceed them. Having listened to the hon. Gentleman and other hon. Members in Committee, I am left in no doubt that the benefits outweigh the costs to an extraordinary degree. I have no second thoughts.

Howard Flight (Conservative, Arundel and South Downs)

If there were some powerful argument for a particular accounting principle that was, for example, different from that in the private sector and that was in the national interest, could not the Government present that argument to the independent body? That body might even judge that that was the case, so the measure does not rule out the Government having a separate accounting principle from that of the private sector, where it is appropriate.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is exactly right. I expect that the body established in new clause 1 would ensure that there are different standards, as different policy problems have to be dealt with by the Government, from nuclear missiles to the extent of pension liabilities. The problems faced by the Government, compared with those faced by private sector companies, are different only in degree—although it is quite a large degree. 9 pm I should think that, on many issues, the independent body will treat accounting standards for public accounts differently from the treatment of private sector accounts, and that those standards will entail moves away from generally accepted accounting practices. I also think that that would be acceptable. As the different standards would be transparent, published and debated, and as members of the independent body could be brought before a Select Committee and questioned on them, I do not see a problem with them. Indeed, they would ensure that difficult public sector dilemmas could be solved more efficiently.

Oliver Letwin (Conservative, West Dorset)

Does the hon. Gentleman agree that the example of New Zealand—which is far more exposed than the United Kingdom to the markets, and is perhaps the most transparent example—shows that it is possible to get away with transparency perfectly well, even in such an exposed economy, and realise the long-term benefits?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Indeed; in this sphere, New Zealand is so far ahead of us that we can only struggle to catch up. Its example should be a lesson to the Government. In Committee, I referred right hon. and hon. Members to the New Zealand Government's website, at www.gov.newzealand. With a few clicks, one can access New Zealand's Acts of Parliament, including the Financial Reporting Act 1993, which established the type of independent accounting standards body that we propose in new clause 1. Subsequently, the New Zealand Act has been amended several times, based on New Zealand's experience of some of the matters that we have been debating. It started off by saying that the board should simply adhere to generally accepted private sector accounting practices, but, because of experience, it has seen fit to amend those instructions. However, we could learn lessons from New Zealand. We could ensure that, in establishing the board, its remit goes slightly wider than New Zealand originally envisaged.

Bill Cash (Conservative, Stone)

Is the hon. Gentleman aware that the original advice given to the New Zealand Government on its new independent banking arrangements, and undoubtedly also on financial control, derived from Professor Charles Goodhart, who is a member the Monetary Policy Committee? If the Government sought to do so, they undoubtedly could have access to the type of advice that the hon. Gentleman is mentioning.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I have always admired Professor Charles Goodhart and thought that he was a great authority on monetary policy, but I did not realise that his expertise and skills have been sought on those aspects of fiscal policy. I am grateful to the hon. Gentleman for enlightening me on that. The Treasury seems to have a problem in relation to the Accounting Standards Board and Departments' internal accounts. In evidence—I think to a Select Committee—Professor Likierman really focused on that issue. He said that he believed that the ASB had little experience in dealing with private sector internal accounts, and that it would therefore be inappropriate for the ASB to consider public sector internal accounts. However, I do not think that the two cases are related. The House could develop the ASB as we want it to be developed. In the private sector, the various regulatory bodies are increasingly passing regulations, guidelines and advice on how internal management accounting should be performed within companies. The public sector could benefit from that information and learning, and from those processes in the private sector. The arguments against our proposals—to the extent that we have heard any from advisers or Ministers—do not stand up to analysis. I conclude by reiterating the importance of the new clause. This place ought to take financial accountability far more seriously than it does and should realise its significance in the life of the nation. If we do not ensure that the information provided to the House is of the highest quality and has the mark of legitimacy and credibility so that we can have faith in the accounts, the whole process will be undermined.

Oliver Letwin (Conservative, West Dorset)

Does the hon. Gentleman agree that, shamefully, we have something to learn from local government? We would never tolerate the arrangements that are being proposed for this place and the Government being applied to local government.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is right. Local government has had aspects of resource accounting for some time. Local government financial scrutiny is far from perfect, but it is better than in this place. On my local council, the royal borough of Kingston, the opposition parties—I am sure that this is true for all local authorities—table amendments to move resources from one spending area to another. The House does not have procedures for such amendments. We do not examine accounts properly. Local government is way ahead in accounting standards practice and the way in which debates take place. I hasten to add that there is massive room for improvement, but the room for improvement in central Government accounting and reporting is so huge that it does not compare. We come down to an issue of democracy. Are the Government happy for their policies to be properly reported on and accounted to Parliament? It will be a great shame if they do not accept the new clause and questions will increasingly be asked about what has happened to their modernising agenda.

David Davis (Conservative, Haltemprice and Howden)

I had not intended to speak on the subject, largely because the Public Accounts Committee has not opined on it recently, but I have been provoked to offer a few words, however briefly, because this is a constitutional issue of some magnitude. Democracies live on a diet of truth. Indeed, they die when they get the opposite. That is why the House spends a great deal of time battling over what is the real information in front of us. When the previous Government were in power, the battle tended to be about whether the unemployment figures were correct and whether the multiple changes in calculating them were properly founded. Now there are battles about issues such as tax burdens and hospital waiting lists. Unfortunately, the battle in the Chamber does not serve to ground the real truth in the statistical areas that we are talking about, be they accounting numbers or performance numbers. That falls to a much more technical process. To some extent, the Select Committees do a better job. That is why they have been the jewels of this faded House in recent times. We are dealing with the fundamentals of the figures that will be in front of us if we are to see the public service revolution that the hon. Member for Kingston and Surbiton (Mr. Davey) referred to. Labour recognised that in opposition. One of the jewels of the Labour manifesto was the notion of an independent national statistics office with an independent director of statistics. That has not yet come about, but its inclusion was a measure of the importance of the issue, particularly to Oppositions, but also to Governments and democracies in general. It is of course a pity that, if the figures are left subject to political influence of Ministers of whatever party, there is always a temptation to alter the numbers to suit the Government of the day.

Oliver Letwin (Conservative, West Dorset)

Does my right hon. Friend agree that whatever logic gave rise to making the statistics function more independent must also apply to the accounting functions?

David Davis (Conservative, Haltemprice and Howden)

That is my general point. Whatever the argument—and it is one based on the importance of accurate factual data for a democracy—it applies to all data, whether they are accounting numbers or performance figures. One of the few conversations with my right hon. Friend the Member for Henley (Mr. Heseltine) in which I have agreed with him 100 per cent. was when he and I agreed that when we first became Ministers we were both shocked by the complete absence of decent management information in Whitehall. Ministers arrive and are interested in the effect of their policies, but they find it almost impossible to get a measure of it. I see the Chief Secretary smiling at me. He probably recognises the syndrome—certainly most Ministers do. When I was at the Cabinet Office trying to make the citizens charter work, I remember asking for examples of how it was working, only to be told by the civil servants that it was not possible to get those examples or the aggregate data that would tell us whether we were delivering a performance for the citizens. That is a disgrace in a small organisation; it is a total disgrace in an organisation as large, complex and public service oriented as the Government. Resource accounting offers the first step towards that. Eventually, the existence of resource accounts, in conjunction with public service agreements, will mean that there will have to be management information systems within Whitehall. However, we face a serious risk if something like the amendments proposed today—I am concerned not so much with the amendments, but with the principle that they encompass—is not espoused by the Government or their successors. The temptation to bend the figures or to choose one set of figures rather than another because they are more favourable to the Government of the day will have the effect in due course of corrupting not just the numbers, but the belief in the numbers. That is very important. If the people who run the public service do not believe the information or it has no credibility for them, their actions on the basis of those numbers will be weakened. They will worry more about the perception than the reality. Back in the 1960s there was a wave of creative accounting in the private sector, partly as a result of changes in accounting standards with which the hon. Member for Kingston and Surbiton will be familiar. That had a massively deleterious effect on the operation of British business, which in my judgment was just as bad as some of the trade union problems that existed at the time. It was the capitalist half of the equation. All those factors undermined the entire decision-making mechanism in British industry. If we do not have some external standard, be it an independent FRAB, the ASB or some other body, we shall be taking a risk with that standard.

Oliver Letwin (Conservative, West Dorset)

Does my right hon. Friend agree that in a sense the situation is even worse in the public sector because the Government necessarily have to deal with highly inadequate data on the macro-economic front? The only aspect of macro-economics which they could account for properly is their own income and expenditure if there were an independent body.

David Davis (Conservative, Haltemprice and Howden)

Of course my hon. Friend is right. However, I wish to focus on the single issue of the effect on the amount of information within the Government. The hon. Member for Kingston and Surbiton spoke eloquently about the prospective revolution in public service delivery that we face in the next couple of decades arising directly from resource accounting and its associated measure of performance—output-related government and outcome- oriented government. They offer a massive transformation. I think that was rather too reticent about that. New Zealand is a good example, but it is only half way there. If the set of numbers that we are about to create in the next two or three years is not founded in such a way that it has the entire confidence of the public service and the public behind it, that threatens to undermine that transformation, which will be a massive cost to pay for what is in my view a short-sighted perspective on the proper approach to this method of resource accounting.

Bill Cash (Conservative, Stone)

I am intrigued by the title of the Bill. Before now, I had not taken great notice of it, but by chance some hon. Friends mentioned to me that I might find it interesting, and I do. For some time I have been an adviser to the Institute of Company Accountants, and the Bill makes some reference to accounting standards. However, I am concerned about the way in which the Treasury would acquire vastly increased power under proposals whose principal I otherwise endorse. For example, the resource accounting system would deal with income—which, in this context, means tax. It would also deal with expenditure, which here means expenditure on public services. The question of assets and liabilities depends on the balance between what is acquired by the private sector, and what remains in the public domain. That raises complex questions. Clause 5(1) states: A government department for which an estimate is approved by the House of Commons in respect of a financial year shall prepare accounts (to he known as resource accounts) for that year detailing…resources acquired, held or disposed of by the department during the year, and…the use by the department of resources during that year. That is the balance that has to be struck. However, clause 5(2) states: Resource accounts shall be prepared in accordance with directions issued by the Treasury. The hon. Member for Stoke-on-Trent, South (Mr. Stevenson) spoke about how independence could be affected by the procedures of the House and so on. However, I am realistic enough to know that the Government's huge majority will ensure that the Bill will be approved at the end of our debate, despite the manful attempts of Conservative and Liberal Democrat Members to prevail against it. Although I do not know what the House of Lords will do, I assume that clause 5(2) will remain in the Bill when it leaves this House. However, the words "in accordance with directions" raise several questions. First, will the directions be general or specific? We do not know. In my past legal career, I spent some time advising many bodies, including public bodies, about the nature of directions, and about remedies in judicial law with respect to them. Is it intended that the directions will be subjected to judicial review? If so, the questions that arise are closely related to the objectives of new clause 1.

Oliver Letwin (Conservative, West Dorset)

Is my hon. Friend aware that the Bill talks about both general and specific directions? The general directions are contained in manuals; no doubt, the specific directions will be the interpretation of the manuals. If it comes to judicial review, how will the courts respond?

Bill Cash (Conservative, Stone)

Indeed—

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. The hon. Gentleman has mentioned clauses other than new clause 1. He has also referred to the Bill in its entirety. We are dealing with a specific amendment, which is the new clause before us.

Bill Cash (Conservative, Stone)

I am grateful to you, Mr. Deputy Speaker, because I am mindful of the fact that we are dealing with new clause 1. However, the group also contains amendments Nos. 1 to 5, and it is to those amendments that I address my comments, because they are relevant to the points that I am making. I do not know whether the provisions have been devised in accordance with rules that have been concocted, not necessarily exclusively in-house within Her Majesty's Treasury, but in respect of the European Union as well. To achieve the degree of convergence that some claim should be achieved—which I prefer to deny—between the member states to enter the single currency arrangements, there are rules which are, in common, devised at a European Union level. Will the directions to be issued by the Treasury be connected with rules that go outside purely domestic considerations, but are devised within a framework of law that is devised by directives produced by the Central Bank, which we might be shadowing, or by specific directives that apply to us? What is the relationship between the Bill and our economy, having regard to the fact that considerable amounts of our taxpayers' money comes back into the British economy and is then called European money? In relation to achieving targets such as the 3 per cent. deficit rule of gross domestic product imposed by the Maastricht arrangements, will those directions seek to achieve the degree of convergence that is necessary between our economy and those of other member states? This must be relevant, because it is about the question—

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. The hon. Gentleman's point is not really relevant; it goes wide of the amendment, which is about changing from replacing "the Treasury" with "the Independent Body". That is far more constrained than the matters which the hon. Gentleman is raising.

Bill Cash (Conservative, Stone)

With respect, Mr. Deputy Speaker, the question is also related, as I have just said, to the question of whether resource accounts shall be prepared in accordance with directions issued by the Treasury.

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. The hon. Gentleman is referring to the amendments that we previously mentioned. Those amendments would delete the word "Treasury" and replace it with "the Independent Body". Therefore, we cannot take the whole clause relating to that amendment and say that that is what will be discussed. All we can do is speak to the amendments. If the hon. Gentleman wishes to have a clause stand part debate, we cannot do so.

Bill Cash (Conservative, Stone)

I am extremely grateful to you, Mr. Deputy Speaker, as ever, for your guidance in these matters. However, if one is to substitute the nature of the body that will issue the directions, it follows that one must be able to make a comparison between the proposed body that is being put forward—in this case described as the independent body—and the Government's proposal that the body should be the Treasury. I am simply seeking to point out that comparing those two proposals means that we have directions issued by the Treasury—

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. If the hon. Gentleman confines his remarks to new clause 1—and there is plenty of meat in new clause 1—he will be able to go along with my ruling. He is concerning himself too much with what is further along the line, saying that under the amendments "Treasury" is replaced with "the Independent Body". Of course that is so, because they are consequential amendments, as the hon. Gentleman is well aware.

Bill Cash (Conservative, Stone)

As ever, I am grateful for your guidance, Mr. Deputy Speaker. I have the greatest respect for your rulings in all these matters. I shall address my remarks specifically to new clause 1.

Oliver Letwin (Conservative, West Dorset)

Will my hon. Friend help me? Is the burden of his argument that an independent accounting body, identified under new clause 1, would not have the temptation so to adjust the standards that the Government would be able to meet—for example—Maastricht criteria?

Bill Cash (Conservative, Stone)

Absolutely. Under new clause 1, it is clear that any such independent body—

George Stevenson (Labour, Stoke-on-Trent South)

Will the hon. Gentleman give way?

Bill Cash (Conservative, Stone)

I shall be happy to do so, but perhaps the hon. Gentleman will allow me to finish the sentence. Any such independent body would have regard to the fact that many fiddles go on in the EU—fraud has a significant impact on public resources and accounting. That independent body would thus be exceedingly vigilant in ensuring that those matters were thoroughly investigated. I shall come to that matter in a moment, but first I give way to the hon. Member for Stoke-on-Trent, South—I would almost like to call him my hon. Friend.

George Stevenson (Labour, Stoke-on-Trent South)

I am grateful to the hon. Gentleman for giving way. I am sure that Hansard would have corrected his slip. The hon. Gentleman referred to the possibility of judicial review against the Government and to European accounting directives. If the independent body were to deviate from accepted practices, would it not follow that it too could be open to judicial review?

Bill Cash (Conservative, Stone)

That is true. Furthermore, if I were right when I pointed out that there was some connection between the provisions of the Bill and more generalised European jurisdiction, there would, ironically, first be a judicial review in this country at the High Court and in the House of Lords and then a review at the European Court of Justice. That is the point I am trying to make. If we have now entered a new world—a brave new world of European financial controls and economy, central banks and so on—it follows that it is essential to have the highest degree of impartiality, transparency and analysis at every stage, right up to the Court of Justice, if the provisions could be reviewed by that court. I should be trespassing too far if I went into an enlarged argument as to the merits or demerits of the European Court. However, the hon. Gentleman's point has substance. As I pointed out earlier, when the Bill moves to another place—the hon. Member for Kingston and Surbiton (Mr. Davey) told us that they even intend to take it as far as the Parliament Acts, if necessary—some adjustment to new clause 1 may be needed, in order to clarify the extent to which the proposals for an independent body could be changed, in line with the points made by the hon. Member for Stoke-on-Trent, South to take into account the public functions and procedures and the degree of accountability and parliamentary control that would be needed over that body. Such provisions would, indeed, be needed for the Treasury itself. A body can hardly be described as independent, if it is not subject to the higher surveillance of those who are elected. I do not criticise the new clause; I am trying to offer some constructive help. It raises some important questions. I asked whether the words, which shall have the functions assigned to it in this Act, referred to subsequent functions that may have been included in amendments that were tabled, but which were not selected—no doubt because of the wisdom of the Chair.

Oliver Letwin (Conservative, West Dorset)

Perhaps I can help my hon. Friend. That phrase refers to the functions that are assigned under amendments Nos. 1 to 5, which systematically replace the word "Treasury" with the phrase "the Independent Body".

Bill Cash (Conservative, Stone)

I am grateful to my hon. Friend. That is one of the points on which you, Mr. Deputy Speaker, prevailed on me not to pursue too far. My point is slightly different. Irrespective of whether those functions are referred to in amendments Nos. 1 to 5, the difficulty is that the independent body would have a degree of statutory authority that would exceed that of any other body or person that I can think of, except perhaps the Comptroller and Auditor General, whose functions are circumscribed by an Act of Parliament. Therefore, it is necessary to consider the position of the independent body in relation to its accountability to Parliament. It would be a little odd to find that the independent body was not subject to any surveillance by those who are elected even though it would have a role in tax, public expenditure, resource accounting and analysis and other complex matters, as well as in the labyrinth of European financing, accounting, pension liabilities, convergence criteria and all that goes with that. The New Zealand model was mentioned and that might be a subject for consideration as the Bill progresses.

Oliver Letwin (Conservative, West Dorset)

Is my hon. Friend thinking of the possibility that a Select Committee, a new Joint Committee, a Special Standing Committee, the Public Accounts Committee or some such body should scrutinise the activities of whatever independent body is designated under the Bill?

Bill Cash (Conservative, Stone)

It might be such a Committee. However, it might be possible for a new schedule to be added to the Bill. That could more closely define the nature of the independent body, so that we have a clearer picture of its functions in relation to the fabric of parliamentary procedure. It is difficult for me to try to come up with ideas off the cuff, so I will not do so now. However, my hon. Friend's point is worth considering. The relationship between the independent body and the Comptroller and Auditor General is another issue. The proposals for the body take me back to the time when some of my hon. Friends lost the Whip, not over Maastricht, as is sometimes suggested, but over a subsequent Finance Bill. The issue was what resources should be made available to the Government of the day from the European Union and what the balance between income and expenditure should be. At that time, I was very much engaged in trying to identify fraud. In a nutshell, my amendment to that Finance Bill tried to demonstrate the necessity for other member states to have similar bodies to our own. By extension, the independent body in the new clause would require a series of analogous of bodies in other members states to complement it. It would be ludicrous—as I argued in Committee—to have public accounts committees in other member states performing the same function for the sake of maintaining the democracy that is at the heart of new clause 1. At the same time, if there were to be such a thing as an independent body subject to the reservations I have expressed, it would be necessary to have a similar body in other member states. Given the acquis communautaire and all that goes with economic and monetary union, we may say that we will have one set of standards and analysis and the consequences of forming the adjustment as between resources and accounting in this country will be X. However, that will not be complemented by similar requirements in other member states.

Gwyneth Dunwoody (Labour, Crewe and Nantwich)

Is the hon. Gentleman seriously suggesting that if other European Union countries do not want to maintain high accounting standards, we should not do so ourselves? That is an interesting reversal of his normal position.

Bill Cash (Conservative, Stone)

I am making exactly the other point. Consistent with all that I have ever said on the subject, if we do not know that other member states will insist on the same standards that we expect, we will end up being cheated and gipped by them. A degree of equivalence is essential. I am not advocating that because I do not want the extension of powers to other member states. But if we are to have an independent body as proposed by new clause 1, I would want to know that the same degree of probity, transparency and accountability will apply in other member states. For sure they cheat us now. With proposals of this kind, we can manage to prevent that happening.

George Stevenson (Labour, Stoke-on-Trent South)

Is the hon. Gentleman saying that unless similar bodies are established in other member states or the EU accepts the proposed independent body, it would lack any credibility?

Bill Cash (Conservative, Stone)

I am saying that the independent body would be able to provide—with the adjustments and reservations that I have described—a degree of objective transparency, provided that it was ultimately subjected to surveillance by elected politicians and Parliament. That is the burden of my argument. I agree with the idea that there should be a degree of independence as reflected by the principles that underlie new clause 1. If that is good enough for this country and if over my dead body—and that is probably true—we were to go into the single currency, we became absorbed by a megastate and our accounts were totally intermingled with those of the EU, it is essential that the same degree of transparency and accountability be applied to other member states, to ensure they do not cheat on us. That has been going on. I tabled an amendment to a Finance Bill to be sure that we would achieve a degree of correlation between our PAC and the committees of other member states. Sitting more or less where the hon. Member for Stoke-on-Trent, South is seated now, I had an arrangement on that very question, through the Government Whips, with the then Prime Minister.

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. The hon. Gentleman is going wide of the amendment.

Bill Cash (Conservative, Stone)

The anecdote is quite interesting but I take your point, Mr. Deputy Speaker.

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. It may be interesting but it is beyond the scope of the amendment.

Bill Cash (Conservative, Stone)

I accept that. If I do not have the opportunity to recount it in the House, I shall have to include it in my memoirs. It has often been said that the best way to keep a secret is to make a speech in the House of Commons. I much agree with the remarks of my hon. Friend the Member for West Dorset (Mr. Letwin), who made a superb speech, and of the hon. Member for Kingston and Surbiton, who addressed the question with a balance between technicalities and constitutional objectivity, which is essential. On the face of it and by any reasonable standards the Bill is as boring as a Bill can be, until one considers the principles that underpin it. They are the key issue and I pay tribute to my hon. Friend the Member for West Dorset for drawing attention to the democratic principles that lie at the root of the new clause to emphasise the necessity of achieving objectivity, transparency and accountability. The Government ought to give serious consideration not only to the arguments that have been made, but to what will happen when the House of Lords gets its hands on the proposals. Notice has been given that the Parliament Acts will be invoked, but if they are and if the Liberal Democrats, the Cross Benchers and Opposition Members in the House of Lords combine—as they have, to considerable effect—the Government will experience increasing difficulties. Whether they accept the new clause or not, in the context of these myriad arguments they will find themselves required to consider the necessity for greater objectivity in relation to these provisions.

Andrew Tyrie (Conservative, Chichester)

I am delighted to have listened to the speech of my hon. Friend the Member for Stone (Mr. Cash), which was an impressive tour de force that raised a number of interesting issues that I had not thought about at all. I have three main points to make: the first concerns the relationship between obtaining better numbers and ensuring that there is public confidence in them, which is central to the new clause; secondly, I shall develop the argument that only an independent body can deliver that public confidence; and, thirdly, I shall argue that some of the benefits of an independent body would go way beyond the narrow intentions of the new clause to the benefit of macro-economic policy as a whole. However, I want to touch on some of what has been said by others, although not at length, as it is worth considering further, if only as questions. For example, might it be possible that the courts, through judicial review, could achieve some of what we hope an independent body would achieve by another route? That interesting idea had not crossed my mind, but should have done. My guess is that it would be extremely difficult for them to achieve that because they would be unlikely to be able to obtain the detailed information that would be required. Much of it will simply never surface in the public domain and always stay in the Treasury. A challenge would be difficult to mount, but I am not a legal expert and it would be helpful to hear a view on that.

The rest of the debate is in Hansard.