23 March 2007
The chancellor has paved the way for the majority of Private Finance Initiative schemes to be brought on to the public sector balance sheet — a move that could jeopardise his sustainable investment rule.
From 2008/09, public sector financial statements will have to abide by International Financial Reporting Standards, rather than the UK Generally Accepted Accounting Practice they currently follow, the 2007 Budget states.
Whole of Government Accounts will also be published for the first time for 2008/09, again to IFRS.
Gordon Brown stated in documents accompanying his Budget speech on March 21 that the change was necessary 'to bring benefits in consistency and comparability between financial reports in the global economy and to follow private sector best practice'.
The move to IFRS means the Treasury will now need to re-examine how PFI assets are accounted for.
In November the International Accounting Standards Board issued new guidance for the reporting of PFI-style arrangements.
They establish that where the public sector retains control of an asset — even if not building and operating it — it should not be on the private sector's balance sheet. By implication, it should be on the public sector's balance sheet, and therefore count as net debt.
A Treasury memo seen by Public Finance confirms that this contradicts current public sector practice, which has approximately half — or £23bn — of PFI assets off-balance sheet. Thus they could be moved 'on' under IFRS rules.
Last September the Office for National Statistics recalculated public sector net debt to include the 'imputed' debt element of the £23bn of PFI deals currently on the government's balance sheet.
That increased public sector net debt by £6bn to 36.7% of gross domestic product, leaving little room for manoeuvre within Brown's 40% sustainable investment rule.
A senior accountancy source told PF: 'I cannot believe the Treasury are relaxed about this, but ultimately good economics is good economics and people cannot let the accounting treatment get in the way of that.'
PFmar2007
