Treasury Committee

Session 2002-03 No. 12                                            20 January 2003


REPORT PUBLISHED ON THE CLASSIFICATION OF NETWORK RAIL



The Treasury Committee today published its First Report, National Statistics: The Classification of Network Rail (HC 154, Session 2002-03).

Michael Fallon MP, Chairman of the Treasury Sub-Committee which undertook the inquiry said:

"How Network Rail is classified in the National Accounts, used to define the Chancellor's fiscal rules and Government debt, is important given that the Government has agreed to support Network Rail by guaranteeing £21 billion of its borrowing. The classification of Network Rail in the private sector for statistical purposes in the National Accounts, and in the public sector for accounting purposes, is confusing to the public and has been the subject of public debate.

We expect the introduction of Whole of Government Accounts to provide greater transparency by bringing information currently available in different places together to form a picture of the Governments financial accounts as a whole.  We support the proposal that contingent liabilities, such as the £21 billion of support to Network Rail, be disclosed with these accounts.

We consider that the extent of contingent liabilities is now of such significance to the state of public finances that  we recommend that the existence of all contingent liabilities be stated in the Red Book with an estimate of the proportion of those liabilities which in aggregate may mature. The Red Book should indicate where the full list is to be found."

Note for Editors

Mr Michael Fallon MP is available for comments on the report on 0797 367 6506.  The Report can be purchased from the Stationery Office Bookshops (tel: 0345 58 54 63). The full text will also be available on the Internet (www.parliament.uk) from 3.30 pm today.

List of the Report's conclusions and recommendations

We consider that the separate views reached by the National Statistician and the Comptroller and Auditor General on the appropriate classification of Network Rail are confusing to those not well versed in statistical and accounting practice. We agree with the Statistics Commission that in these circumstances, where two different processes based on the same facts appear to have produced contradictory results, namely whether Network Rail is in the private or the public sector, the onus is on the parties concerned to align their different positions and explain the rationale for them to the public.

We welcome the joint statement by the Comptroller and Auditor General and the National Statistician explaining their respective positions on the classification of Network Rail. We accept that the two positions reflect different professional requirements and traditions, but believe it would be helpful to public understanding of the position if the rules for accounting of liabilities with varying degrees of perceived risk were reviewed by both to see if greater transparency can be achieved.

We note that ONS relies on departmental accounting advice in determining whether government guarantees are actual liabilities to be included in the National Accounts or contingent liabilities, which are excluded. The advice in this case, from the Head of Accountancy Profession at the Department for Transport that the Government support facilities for Network Rail were contingent liabilities, has been confirmed by the National Audit Office. We are however concerned that there is the perception of a conflict of interest in ONS seeking advice on arrangements from the department responsible for making them. To avoid any potential question of a conflict of interest in future, the advice given by accountants working within departments should in analogous cases be made subject to confirmation by the National Audit Office.

We recognise that contingent liabilities are reported to Parliament when they are created and are disclosed annually in the Consolidated Fund and National Loans Fund Accounts Supplementary Statements. We consider that the extent of contingent liabilities are of interest in relation to the state of public finances, and we therefore recommend, in the interest of greater transparency, that the existence of all contingent liabilities be stated in the Red Book with an estimate of the proportion of those liabilities which in aggregate may mature. The Red Book should indicate where the full list is to be found.

We expect the introduction of Whole of Government Accounts to provide greater transparency by bringing information currently available in different places together to form a picture of the Governments financial accounts as a whole.  We support the proposal that contingent liabilities be disclosed with these accounts.

We expect that the introduction of Whole of Government Accounts will also raise questions concerning the function of National Accounts. We therefore recommend that any significant differences between the two accounts should be shown in a published reconciliation and fully explained.