Treasury reassures investors on PFI as £23bn of debt looms

14 Jun 07
The Treasury has attempted to reassure investors that it remains committed to the Private Finance Initiative, despite accountancy rule changes that could add an extra £23bn of debt to public sector balance sheets.

15 June 2007

The Treasury has attempted to reassure investors that it remains committed to the Private Finance Initiative, despite accountancy rule changes that could add an extra £23bn of debt to public sector balance sheets.

'The private sector is probably nervous about what the public sector's approach will be and if the government's commitment to the wider PFI programme is still there,' James Pocklington, head of corporate and private finance at the Treasury, told Public Finance.

The concern follows the announcement in the April Budget that public sector accounts will conform to International Financial Reporting Standards by 2008/09. The treatment of PFI-style deals has recently been overhauled in the IFRS, which, by the Treasury's own estimation, means that 'most' of the £23bn worth of PFI liabilities not currently registered on public sector balance sheets will now have to be.

That is likely to affect the size of the public sector net debt as well as individual departments' abilities to stay within their capital expenditure limits.

Pocklington told PF that market concerns about the impact that would have on the future of the PFI had led the Treasury to underline its commitment to a £22bn 'pipeline' of PFI capital investment over the next five years.

Pocklington was speaking at Partnerships UK's national conference on June 7. He was joined by PUK chief executive James Stewart, who said the market needed to face up to recent challenges around the reportedly large profits made by those who sold on their equity shares.

Some MPs have called for such profits to be shared with the public sector as they believe the fact that people are prepared to buy shares at up to twice their original cost shows that the returns demanded by primary investors are 'too high'.

The Treasury has rejected those calls, but Stewart said: 'So far the vast majority of these benefits have flowed through the secondary market and therefore into the hands of the primary equity players. The public sector has had very little benefit at all because it doesn't [affect] the unitary charge. We are seeing some evidence that the primary yields are coming down… but I still feel the arbitrage between primary and secondary yields is too great.'

PFjun2007

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