15th May 2009
By Graham Clews
The cost of Private Finance Initiative projects will still not count towards public sector net debt, but government departments and local authorities will have to include the projects on their balance sheets, Treasury advice has confirmed.
Although a planned change in accounting systems for the current financial year will come into effect, a different accounting standard will apply for Treasury budgeting purposes.
While government departments and local authorities will move to International Financial Reporting Standards as planned, the Office for National Statistics’ measurement of central government debt will still adhere to European Union accounting standards.
The EU standards measure the ‘risk and reward’ of PFI projects, which can continue to be attributed to the private firms involved. IFRS standards demand that the ‘asset’ appears on the relevant body’s balance sheet.
Nick Prior, head of government and infrastructure at consultancy Deloitte, said the Treasury guidance meant stalled PFI schemes were now likely to get the go-ahead.
‘This will ensure that there is no change to budgetary requirements for current commitments to the PFI, and secondly, it will allow public bodies to move forward PFI and public-private partnership projects that were being held up due to uncertainty, including budgetary arrangements.’
There are about 110 PFI projects in the pipeline, worth £13bn. They include £3.5bn worth of waste treatment and environmental projects, £3.1bn of transport schemes and £2.4bn of schools projects.
PFI commentator Mark Hellowell, of the Centre for International Public Health Policy at Edinburgh University, said the Treasury guidance meant there would continue to be a ‘fiscal advantage’ for government PFI schemes.
But he added that it remained to be seen how the government would ‘incentivise’ local authorities to continue to pursue PFI projects.
A spokesman for 4Ps, the Local Government Association’s PFI arm, said local authorities had been planning for the accounting change and the effect on council tax would be neutral.
A Treasury spokesman said the treatment of PFI projects in the national accounts was a matter for the ONS, and the Treasury guidance was aimed at clarifying the position.
