Treasury covers the cost of PFI accounting regulations

1 Jul 99
The Treasury will give financial backing to any Private Finance Initiative scheme that ends up on the public sector balance sheet because of new accounting rules, Public Finance has learned.

02 July 1999

New PFI accounting regulations, which were announced at the end of last week, may move some PFI deals on to balance sheets, which would drain money from government departments' capital spending budgets. These fears were exacerbated when it emerged that contracts would be assessed retrospectively. But officials at a Treasury-sponsored seminar on the new rules this week said they would find a way of protecting these budgets.

This pledge will apply to projects that were signed or at the 'best and final offer' stage by July 1. Schemes at best and final offer by October 1 will be treated 'sympathetically' on a case by case basis.

The Treasury is confident that few schemes will go on to public sector balance sheets. PricewaterhouseCoopers assessed six large schemes under the new rules and found they would all remain off balance sheet.

Under the new regulations, separable elements of the contract, such as payments for different services, are ignored. If all that remains is payment for a property, the deal should be treated as a lease and placed on the balance sheet. The same treatment is necessary if the public sector retains a substantial amount of the risks and rewards.

The Treasury insisted risks should not be transferred in order to get deals off balance sheet. Chief secretary to the Treasury Alan Milburn said: 'Value-for-money deals go hand in hand with the key test of genuine risk transfer achieved under PFI contracts.'

The CBI welcomed the new rules, though it would prefer deals to be looked at 'as a whole'.

Peter Fanning, chief executive of the 4Ps, the council-sponsored body that promotes public-private partnerships, said: 'We can now get on with the business of bringing more investment into local government. Progress in local government has been strong, this will strengthen it further.'

The new rules do not apply automatically to council PFI contracts. Revised capital finance regulations are expected in the next few months.


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