Rail link finance is public sector debt, says ONS

4 Aug 05
Cash raised by a private consortium to finance the extended Channel Tunnel rail link must be classed as government borrowing, the Office for National Statistics has insisted.

05 August 2005

Cash raised by a private consortium to finance the extended Channel Tunnel rail link must be classed as government borrowing, the Office for National Statistics has insisted.

But national statisticians have told Public Finance that the switch will not, contrary to reports this week, affect Chancellor Gordon Brown's 'golden rule' on borrowing.

The ONS stated on August 2 that £1.3bn raised by London and Continental Railways through a bond issue in November 2003 must be placed on to the national accounts, because the bonds were secured against future income flows from the government to LCR.

'However, the cash will appear on the national accounts only as public sector net debt, and not public net borrowing, because the £1.3bn is guaranteed to be covered over time. In essence, the debt is already earmarked to be cancelled out,' an ONS spokesman told PF.

That means Brown's politically sensitive golden rule of borrowing only to invest over the course of an economic cycle remains unaffected.

Carl Emmerson, a deputy director at the Institute for Fiscal Studies, said: 'It is not unusual for such debt to be accounted for in this way.

'It does, however, count against the chancellor's second “golden rule”, the sustainable investment rule, which determines that debt must remain lower than 40% of national income.'

The ONS predicts that the switch would raise only net public debt by 0.1% – keeping the total comfortably below that 40% target at around 35%.

The ONS became aware of the potential anomaly in September 2004, but awaited a judgement from its European peer, Eurostat.

PFaug2005

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