Clause 8 - Control of Credit Arrangements
Local Government Bill
2:30 pm
Mr Christopher Leslie (Parliamentary Secretary, Cabinet Office; Shipley, Labour)
As I recall, I was addressing the remaining issues raised by the hon. Member for Runnymede and Weybridge (Mr. Hammond). He asked whether the word ''cost'', as the term used in clause 8(2), includes the financing costs of the arrangement, and as I said, it will not.
Accounting practices require assets to be recognised in the balance sheet initially at cost. For an asset acquired under a credit arrangement they will require the cost to be set at a value roughly equal to the amount that would have been paid up front. That may not be the same as the capital value, because the authority may have ownership of the asset only for a limited period, such as a lease. The wording in the clause follows accounting practices and ensures that financing costs are not included in the opening cost figure. The effect is that, in the case of traditional borrowing, interest costs do not score as part of the
cost, and in the case of a lease, service costs do not score either. In other words, there is a level playing field, which, I think, is the assurance that the hon. Gentleman sought.
What is captured in credit agreements will be basically the same as under the present system, except that it will rely largely on accounting definitions, rather than achieving the same effect through complex statutory definitions, as under the present system. I hope that that explanation is helpful, and I urge the hon. Gentleman to withdraw the amendment.