31 August 2007
NHS trusts are still waiting to hear if they will be hit by an increase of up to £280m in annual capital charges under next April's changes in accountancy rules.
The potential charge increase stems from changes to the way assets bought through the Private Finance Initiative are accounted for. At present just five NHS PFI deals – with a capital value of £243m – appear on trust balance sheets. A further 80 signed deals – worth £8bn – are expected to move on when International Financial Reporting Standards come into effect across the public sector in April 2008.
That will make them liable for the 3.5% capital charge levied by the Treasury on the capital value of central government and NHS assets. Andrew Lloyd-Kendall, policy manager at the NHS Confederation, told Public Finance: 'Some kind of financial support will have to be inevitable, because for an individual hospital trust it could be a problem.'
He said that the Department of Health and the Treasury were in talks with the Financial Reporting Advisory Board to develop a solution – either to waive the charge or to provide compensatory support. But with most trusts already well into financial planning for 2008/09 and beyond, he said time was running out.
'We need to know by Christmas at the latest what the new system will be. Trusts will already have done their business plans; it's not tenable to just suck it and see. We need a fix as soon as possible,' he said.
It is not clear whether the full £8bn of signed off-balance-sheet deals will move onto balance sheets immediately as not all deals have reached construction phase. For older deals, depreciation will be taken into account if capital charges are levied.
The issue was first raised by credit ratings agency Standard & Poor's. Credit analyst Robert Robertson said that charging trusts with PFI deals a capital charge was a 'double whammy', as capital charges were meant to act as a charge on the cost of money. But in PFI deals that was already implicit in the interest rates payable to creditors.
Robertson said: 'It's an anomaly. Somebody has to address it, because if it's not addressed trusts will experience some pressure.'
PFaug2007
