The charge was leveled by the Tory’s new shadow Treasury chief secretary Howard Flight, who claimed ministers have been adopting the US-style rules-based approach to government accounting instead of the UK’s principles-based practice.
Flight said: ‘The deliberate policy of structuring investments so as not to appear “on balance sheet”, making the company’s financial position look much better than the underlying realities, were at the heart of the Enron scandal.
‘The Blair Government has been doing similar things with regard to public sector investment, extending off balance sheet PFI deals dramatically from the Conservative introduction of PFI for straightforward projects such as bridge and roadbuilding and, where the risk transfer principle of PFI was not possible, inventing the PPP structure.’
He said Labour had ‘rigged’ Best Value, Cost Comparator justification exercises and, zeroing in on the creation of Network Rail, said they had created a ‘not for profit’ public sector entity in such a way that its huge expenditure and liabilities would not be recorded as public expenditure and public debt.
Flight said the problem was the rate at which liabilities would stack up.He said that, in consultation with the Accounting Standards Board, the government had adopted private sector standard SSAP21, permitting operating lease commitments to be off-balance sheet.
The result, claimed Flight, was that if less than 90% of the capital value of the asset was recouped by the lessor out of capital elements of lease payments, it would not count as public sector borrowing liability.
He claimed that, in any event, the private sector SSAP21 test was not being operated.
Flight also claimed ministers have interpreted FRS 12 to avoid disclosure of contingent liabilities such as Network Rail on the ground that the contingent liability was remote – and he claimed this contrasted with the approach of comptroller and auditor general Sir John Bourn who said financial reporting standards ‘look at the substance of transactions as well as the legal form’.
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