Sir George speaks out on Government's off-balance sheet accounting
2 Apr 2003
Sir George spoke in the debate on Government Accounting in Westminster Hall. The text of his speech follows:

Sir George Young (North-West Hampshire): I commend my hon. Friend the Member for Fareham (Mr. Hoban) on his speech on this important subject and on initiating the debate. I want to step back to consider briefly three strategic issues that arise from his contribution.
First, there is what I call the profile of the problem. Although the question of what is or is not public expenditure concerns all Governments—the Conservative Government certainly grappled with what were then called the Ryrie rules—the problem is much more serious for a new Labour Government. Under a traditional Conservative approach, the philosophy was to disengage, divest control totally and put an industry wholly in the private sector, where it was neither funded nor controlled by the Government. It flowed from that that there was no question of any expenditure by the industry in question scoring as public expenditure. So, we do not have such debates in relation to BT, BAA, water or electricity.
Likewise, the problem did not exist for an old, traditional Labour Government. They wanted to control, and they wanted to fund. They were not bothered about borrowing or taxing—those were badges of honour—and the subject of my hon. Friend's debate also did not arise. However, there is a problem with new Labour, because it wants to control, but it does not want to fund. It wants to boast about taking Railtrack back into public ownership, but it does not want the cost to appear on the balance sheet. Hence, we have the problems raised by my hon. Friend.
An obsession with presentation is a second issue, which is peculiar to this Administration. There are two sides to the coin that we are debating—Government expenditure and Government income raised through taxes or borrowing. We have seen repeated announcements on public expenditure, including a sensational comprehensive spending review in which the same amount was counted three times. It was widely condemned at the time, but happily not repeated. On the other side of the coin are stealth taxes, and now we are seeing their brother—stealth borrowing. Stealth taxes avoided putting up headline tax rates, but achieved the same end by eroding allowances and by hitting indirect taxes and the council tax hard. That has been taken to extremes this month with the national insurance increase. The Government have nearly run out of runway on that.
Now there is stealth borrowing, which my hon. Friend described. The debt does not appear on the balance sheet, as far as the lender to the Government is concerned, but the Government are seen to be standing behind the transaction, as far as the contractor is concerned. I recently asked a contractor about Network Rail's credit rating. He replied that, initially, it was not that good. Now, the advice given to him by the professionals is that it is okay, because the Government would not let Network Rail go under. As my hon. Friend said, the action that secured that good credit rating does not appear as a Government liability.
My third point is that other UK institutions have been less fortunate than the Government when defining potential liabilities. For example, pension funds are applying new rules that oblige them to take a pessimistic view of their liabilities by crystallising them at a time when the stock market is low and by being obliged to increase employer and employee contributions.
The best parallel for the Government is what they are doing to local government. I do not know whether the Minister has had time to look at the Local Government Bill explanatory notes, but they deal with the local government borrowing regime. On clause 18, they say, regarding local authority companies:

"The present system ensures that authorities cannot evade the capital controls by operating through companies they own or influence. That broad principle will be preserved under the new system".
That strikes me as a different regime from what my hon. Friend described. I refer to the note on clauses 7 and 8, covering credit arrangements:

"Credit arrangements (as defined in clause 7) will continue to be treated like borrowing under the new system . . . The definition of credit arrangements is much simpler than under the present system, relying on the accounting concept of long-term liabilities".
So, it appears that the Government have one rule for local government and a much more relaxed regime for central Government.
My final point is to ask what the point is in having rules—the sustained investment rule, the golden rule and the rest. They are there to convince the financial community that the Government are prudent, and to convince citizens that their Government are not overextending themselves. They are also there to establish the Administration's credibility. However, if one plays around with the figures, one may win the battle, but lose the war. One may keep the figure within the limit that one has set oneself, but if that injures the rules, the trust sought in the first place becomes forfeit. The Administration's credit rating will be hit in the same way as if the figures put on the balance sheet had gone through the limits. Institutions such as the European Commission are now publicly questioning the management of the economy.
My message to the Government is that going through the procedures that we have just heard about is not worth the candle. Better to be upfront about it and to put the figures where they should be, as the financial community will come to exactly the same conclusion as it would have had the figures been concealed. It is not worth indulging in the charade that has been described to us this afternoon and I hope that the Government bring it to a conclusion as soon as they reasonably can.

 
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Copyright Sir George Young Bt. 2015