WRITTEN QUESTION E-1816/03 by Charles Tannock (PPE-DE) to the Commission. The increasing use by Member States of off-balance items to reduce public-sector deficits.
Date: 2003-06-02
Institutions: European Parliament, Provisional data
Subjects: EU Member State, Eurostat, accounting system, loss, public administration, public debt, stability pact, statistics

15.1.2004

EN

Official Journal of the European Union

C 11 E/231

The Commission fully supports this wording. The text does not refer to ‘official’ Union but rather
‘European’ languages and does not prejudge (cid:1) or exclude (cid:1) the use of any particular language as the
language of instruction. It does encourage the use of at least two European languages spoken in the
Member States where the higher education institutions involved in the Erasmus Mundus Masters Course
are situated.

The Commission considers that no European languages suffer from this provision. On the contrary, such
provision is coherent with other Commission initiatives aimed at promoting multilinguism and the
learning of European languages.

(1) 2002/0165 (COD).

(2004/C 11 E/259)

WRITTEN QUESTION E-1816/03

by Charles Tannock (PPE-DE) to the Commission

(2 June 2003)

Subject: The increasing use by Member States of off-balance items to reduce public-sector deficits

Enron has become infamous for its use of off-balance items to disguise the true level of the company’s
indebtedness. Less well-understood is the increasing frequency with which EU Member State governments,
including the British government, are using this facility. In the UK Private Finance Initiatives are used in a
range of economic activities from the building of foundation hospitals to maintaining railway networks.
Off-balance sheet vehicles with or without public sector involvement are often thinly capitalised with
interest payments frequently accounting for most of the profit before anything is left for the shareholders.
Recent investigations by The Times revealed that the lead contractor will typically have an equity interest
of only 5 per cent in a project, and that even on that basis the equity invested by the five biggest
construction-related PFI contractors in the UK is supporting unreported debts of GBP 2 billion, suggesting,
in turn, that the special purpose vehicles that own the various PFI contracts of these companies alone have
collected debts of about GBP 40 billion.

As Enron showed, the issue of whether potential liabilities should be allowed to appear as off-balance
items is a very real one. Many accountants are increasingly nervous at the implications of this growing
practice, arguing that a liability is a liability and that hiding it somewhere off the balance sheet doesn’t
make it go away, whilst others point to the political reality that a government is unlikely to allow nuclear
power plants, rail networks or foundation hospitals to go bankrupt. According to a Conservative Party
analysis the total off-balance sheet debt held by the Chancellor comes to more than GBP 100 billion,
indicating a real public sector debt level of 40 rather than 32 per cent of national income.

In the case of Network Rail, a dispute arose at the end of last year as to whether the Chancellor should be
allowed to offload up to GBP 21 billion of debt by keeping it off the public sector balance sheet. The
Office of National Statistics (ONS) agreed with this procedure based on consultations with the department
chief accountant Alan Beard who was later reported to have said that it would be a mistake to assume that
the ONS decision. The Department of Transport defended its
his judgement
accounting procedures, saying that they were in line with European guidelines. Is that correct, and what
are the obligations of the Member States in this regard under the terms of the Growth and Stability Pact?
Does the Commission believe that in both the private and public sector there needs to be discussion with
the International Accounting Standards Board to ensure consistent and transparent accounting and what
steps has the Commission taken to ensure that EU governments comply with their obligations in this area?

‘necessarily supported’

C 11 E/232

Official Journal of the European Union

EN

15.1.2004

Answer given by Mr Solbes Mira on behalf of the Commission

(8 July 2003)

The government deficit and debt that are relevant for the purpose of the Stability and Growth Pact are
defined in Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol
on the excessive deficit procedure annexed to the EC Treaty (1), as amended (2), through a cross-reference to
the European System of National and Regional Accounts (3). Additional guidelines for interpreting ESA 95
rules are to be found in the Eurostat’s ‘ESA95 Manual on government deficit and debt’.

ESA 95, which has to be applied strictly for the benefit of the Stability and Growth Pact (SGP), does not
record off-balance sheet items. This means that the government’s contingent liabilities, which may or may
not become at one point in time government liabilities depending on the fulfilment of some conditions,
are not recorded as government debt before such conditions are fulfilled.

The liabilities of the units that the Honourable Member describes as ‘off-balance vehicles’ are recorded as
government debt in case they are classified as part of the general government sector. This depends on the
economic nature of their activity and degree of autonomy vis-à-vis the government.

As far as Private Finance Initiatives (PFIs) and Public Private Partnerships (PPPs) are concerned, the ‘ESA95
Manual on government deficit and debt’ already provides some guidance on the issue. According to the
currently existing rules, the PPP-related liabilities are recorded in the accounts of the government or of the
contractor depending on which unit is exposed to most of the risks of each specific project. Moreover, to
better clarify the accounting treatment of these complex transactions, Eurostat is currently chairing a task-
force on PPP which will soon lead to the adoption of more detailed accounting rules.

Concerning the sectoral classification of Network Rail, Eurostat analysed carefully the information at its
disposal and agreed with the United Kingdom’s Office for National Statistics (ONS) that it should be
classified in the non-financial corporation sector
is outside general
government. This is because Network Rail fulfils the criteria of market producer according to national
accounts methodology.

(as a private producer),

that

The issues mentioned by the Honourable Member referring to Foundation Hospitals and nuclear power
plants have been recently discussed with the office of National Statistics (ONS) during a recent Eurostat
mission to the United Kingdom.

Finally, it is worth to recall that there are regular contacts between the International Accounting Standards
Board (IASB) and Eurostat which lead to the discussions of matter of common interest as far as the
accounting standards are concerned.

(1) OJ L 332, 31.12.1993.
(2) OJ L 58, 3.3.2000.
(3) ESA95.

(2004/C 11 E/260)

WRITTEN QUESTION E-1834/03

by Avril Doyle (PPE-DE) to the Commission

(2 June 2003)

Subject: BSE

Can the Commission advise on European Union statistics for BSE testing of cattle:

(a) aged between 30 and 36 months;

(b) aged between 27 and 30 months since 2000?