PFI figures are a 'step forward in a murky area'
The government has long been accused of finessing the public finances by favouring private finance initiative deals for capital investment projects, such as schools and hospitals, because the debt did not show up on the government's books. Now, after pondering the problem for five years, the Office for National Statistics has put a £4.95bn figure on the value of the debt of PFI and public-private partnership deals, which it has added to public sector net debt. Its estimate represents what it thinks the government would have to borrow today to buy back a PFI asset for the remainder of its PFI contract.
But the exercise, which the ONS yesterday noted had posed "significant measurement challenges", because of the "complexity and variety of PFI schemes", has raised almost as many questions as it has answered.
For example, PFI hospitals in Scotland were included in the figures but most of those in England and Wales were not, an anomaly that yesterday had opposition parties united in calling for government statisticians to be made independent.
Vince Cable, Liberal Democrat Treasury spokesman, said: "Hospital PFIs have given PFI a bad name because many projects were undertaken for the wrong reason as a way of hiding government debt.
"This debt will have to be paid. Many financially hard-pressed hospitals will be stuck with the burden for many years to come."
The controversy over accounting for PFI projects is not confined to opposition politicians. Jean Shaoul, professor of Public Accountability at Manchester Business School, said the reason why so many hospitals were off-balance sheet was because government accountants had assumed risk had been transferred to the private sector.
"That is a dubious assumption and I am not comfortable with the way PFI is accounted for in national statistics because when things go wrong, ultimately the public sector picks up the tab," she said.
Another anomaly, alluded to by the ONS, is that some projects, especially hospitals, are often neither on the government's nor the private sector's books. Yet others, notably roads, are included in the accounts of both.
The total capital value of PFI projects signed by March 2006 was £48bn and the Treasury has said that £23bn of this is on its books. The balance is off-balance sheet because of a judgment that the risk is in the hands of the private sector.
Of the £23bn of on-balance sheet PFI, £16bn relates to funding for the London Underground, only a small proportion of which has been spent. In addition, the government has already paid the private sector money to cover some finance lease liabilities, which is why the ONS estimate of £4.95bn looks relatively small.
But as the Institute for Fiscal Studies noted, this figure will keep changing. As projects come into operation, the amount added to net debt will be increased.
Christine Frayne, senior research economist at the think-tank, said: "However, the upwards adjustment will also be reduced by payments made by the public sector to the private sector that cover part of the finance lease liability and which are already included in public sector debt. Therefore it is not straightforward to judge how today's improvements to the measurement of debt will change debt going forwards."
John Hawksworth, of PwC, the professional services firm, said: "We don't know if the numbers will rise quite quickly or whether they will be relatively stable." On balance, however, he said the changes were an improvement. "It's not the end of the debate but it is a step forward in what has been a murky area."
http://www.ft.com/cms/s/bfee2c56-490d-11db-a996-0000779e2340.html
Health Direct applauds the Office for National Statistics for it's decision to add the £4.95bn to public debts statistics, but we note that £25 billion appears to subject to further interpretation.
This £25 billion figure equates to roughly a third of the NHS's entire annual budget.
As such the call for independence for the ONS will only grow when bliar so blatantly spins it's figures- as we witnessed at the TUC's conference when he incorrectly anounced that unemployement had fallen when in fact the number had actually increased.
But the exercise, which the ONS yesterday noted had posed "significant measurement challenges", because of the "complexity and variety of PFI schemes", has raised almost as many questions as it has answered.
For example, PFI hospitals in Scotland were included in the figures but most of those in England and Wales were not, an anomaly that yesterday had opposition parties united in calling for government statisticians to be made independent.
Vince Cable, Liberal Democrat Treasury spokesman, said: "Hospital PFIs have given PFI a bad name because many projects were undertaken for the wrong reason as a way of hiding government debt.
"This debt will have to be paid. Many financially hard-pressed hospitals will be stuck with the burden for many years to come."
The controversy over accounting for PFI projects is not confined to opposition politicians. Jean Shaoul, professor of Public Accountability at Manchester Business School, said the reason why so many hospitals were off-balance sheet was because government accountants had assumed risk had been transferred to the private sector.
"That is a dubious assumption and I am not comfortable with the way PFI is accounted for in national statistics because when things go wrong, ultimately the public sector picks up the tab," she said.
Another anomaly, alluded to by the ONS, is that some projects, especially hospitals, are often neither on the government's nor the private sector's books. Yet others, notably roads, are included in the accounts of both.
The total capital value of PFI projects signed by March 2006 was £48bn and the Treasury has said that £23bn of this is on its books. The balance is off-balance sheet because of a judgment that the risk is in the hands of the private sector.
Of the £23bn of on-balance sheet PFI, £16bn relates to funding for the London Underground, only a small proportion of which has been spent. In addition, the government has already paid the private sector money to cover some finance lease liabilities, which is why the ONS estimate of £4.95bn looks relatively small.
But as the Institute for Fiscal Studies noted, this figure will keep changing. As projects come into operation, the amount added to net debt will be increased.
Christine Frayne, senior research economist at the think-tank, said: "However, the upwards adjustment will also be reduced by payments made by the public sector to the private sector that cover part of the finance lease liability and which are already included in public sector debt. Therefore it is not straightforward to judge how today's improvements to the measurement of debt will change debt going forwards."
John Hawksworth, of PwC, the professional services firm, said: "We don't know if the numbers will rise quite quickly or whether they will be relatively stable." On balance, however, he said the changes were an improvement. "It's not the end of the debate but it is a step forward in what has been a murky area."
http://www.ft.com/cms/s/bfee2c56-490d-11db-a996-0000779e2340.html
Health Direct applauds the Office for National Statistics for it's decision to add the £4.95bn to public debts statistics, but we note that £25 billion appears to subject to further interpretation.
This £25 billion figure equates to roughly a third of the NHS's entire annual budget.
As such the call for independence for the ONS will only grow when bliar so blatantly spins it's figures- as we witnessed at the TUC's conference when he incorrectly anounced that unemployement had fallen when in fact the number had actually increased.
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