PracticeAuditBourn: Network Rail loan should be in accounts

Bourn: Network Rail loan should be in accounts

Comptroller and auditor general Sir John Bourn has dramatically stepped into the row over the status of a £21bn Treasury loan guarantee underpinning Network Rail amidst allegations of 'Enron-style accounting practices'.

Link: Treasury faces grilling over accounting policies

He told the Commons Treasury Committee the contingent liability should be made clear in the government’s accounts – and said he believed ministers have now accepted that such loans should in future appear in the accounts of the Strategic Rail Authority.

Bourn refused to go further and rank the contingent liability as public borrowing, but said he could ‘certainly see that to the ordinary citizen that it would look peculiar’.

Bourn added: ‘As a prudent external auditor anxious to bring things out into the open air, my concern is that contingent liabilities should be fully stated. We should know the worst case.’

He also revealed the Statistics Commission had been worried about the need for ‘greater transparency’ over the funding of the replacement for Railtrack and that commission chief Sir John Kingman had raised the issue with cabinet secretary Sir Andrew Turnbull.

But the department of Transport insisted that because loan facilities had not yet been drawn on, they did not need to be in the accounts, claiming that to do otherwise would ‘give a misleading picture’.

Among opposition MPs on the committee, Liberal Democrat David Laws claimed this enabled the government to massage debt figures down.

Bourn’s disclosures followed the increase in government borrowing to £20bn in chancellor Gordon Brown’s pre-Budget Statement.

If the NR contingent liability were included it would be a massive £41bn and only just fall inside Brown’s ‘prudence’ rules.

The likelihood of the contingent liability becoming an actual liability later moved closer with a warning from SRA chairman Richard Bowker that unless the industry can cut costs, vital improvements – which will be listed next month – may have to be shelved.

Bowker said that to avoid them more money would have to be allocated to rail in the 2004 spending review, amidst fears that the SRA’s £33.5bn finance will barely cover maintenance, current projects and operating subsidies.

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