Treasury turns spotlight on PFI risks

29 Oct 98
New local government finance regulations are being drawn up to improve the accounting of Private Finance Initiative deals.

30 October 1998

Although agreement was reached in September between the Accounting Standards Board and the Treasury on PFI accounting standards to ensure that risks associated with PFI deals are shown on either the lenders' or the borrowers' balance sheets this does not yet affect local government.

A Treasury official said this week that local government's PFI accounting arrangements would now have to be reviewed. There is no timetable for drawing up the new regulations, but it is likely to take months rather than years. The process will be delayed by the need for the regulations to be approved by parliament.

Peter Fanning, chief executive of the Public Private Partnership Programme (4Ps), confirmed the regulations would be examined, adding that PFI deals are controlled by the capital finance regulations which `may change' in the light of the ASB ruling.

Mr Fanning suggested that the issues raised by the ASB over central government PFI accounting arrangements did not apply to local government. `It has always been the case that local authority PFI is determined by the capital finance regulations, not by the accounting rules. So whether something is on or off balance sheet has never arisen in local government,' he said.

Local authorities are gradually moving to full resource accounting, including the adoption of proper balance sheets, declaring assets and their underlying liabilities, including PFI deals.

Nick Salisbury, head of the PFI unit at Barclays Bank, said there were no serious problems for the private sector with local government's existing PFI accounting arrangements. He was more concerned that councils' accounts could properly reflect risk attached to joint ventures with the private sector both the Treasury and 4Ps have recently published advice to public bodies in developing joint ventures.

A list of new local government PFI deals is to be published next week by the Department of the Environment, Transport and the Regions.


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