Mr Major’s Written Parliamentary Answer on Nationalised Industries – 17 December 1987

Below is the text of Mr Major’s written Parliamentary Answer on Nationalised Industries on 17th December 1987.

Mr. Oppenheim To ask the Chancellor of the Exchequer if he will make a statement on the accounting policies of nationalised industries in the light of the discussions which have taken place on the report, “Accounting for Economic Costs and Changing Prices”, published in August 1986.

Mr. Major Successive Governments have pointed out the desirability of making due allowance for changing prices in company accounts. This is particularly important in businesses where, as in a number of the nationalised industries, assets are long lived and where rates of return based on historic cost arc inadequate as measures of economic performance.

The nationalised industries have been at the forefront of the application of current cost accounting. The Government have welcomed this and note that some of the industries that have been privatised, in particular those subject to regulation, have decided to maintain current cost accounts. We have noted that the Director General of Telecommunications has proposed that British Telecommunications should publish information on current cost profits.

When the Government published the report of the advisory group, “Accounting for Economic Costs and Changing Prices” they said that sponsor Departments and the Treasury would discuss the general principles described in the report, their merits and their practical application with individual nationalised industries, the nationalised industries’ chairmen’s group and other interested parties. Discussions with the individual industries and with the chairmen’s group have now taken place. There have also been comments by the accountancy bodies and wider discussions.

These discussions have been at a technical level throughout. The majority of corporations have recognised the need to measure economic costs and have indicated ways in which some of the recommendations in the report to that end need modification for practical application. Suggestions have also been made as to how some of the recommendations might he further developed. The discussions have identified certain problems which require further study. They have shown the conditions under which modified historical cost accounts can he used to measure economic performance. These are that in those accounts the revaluations should cover all assets and be regularly updated, and that revalued assets are consistently treated in both the profit and loss account and balance sheet.

The discussions have underlined the importance of the distinction made in the report between industries with a substantial degree of influence over their prices – the “price-makers”; and industries whose prices are determined in competitive markets – the “price-takers”. The Government are satisfied with the outcome of the discussions and do not propose to take any immediate action. The discussions have been useful in confirming that the present accounting policies of nationalised industries go a long way towards the objective of providing measures of economic costs and that some further progress is in prospect. Present accounting policies should be maintained and reviewed in a year or two so that they continue to develop in ways which fulfil this objective.