Britain, and many other countries including Canada, Japan and Australia, use PFI to pay for infrastructure. Instead of paying a contractor to build a school, the government will pay to lease it over 30 years, transferring some management and operating risk to the builder. The question is whether that 30-year lease commitment is a debt, in which case it should be on the balance sheet, or not.

The UK’s answer to this question has been inconsistent, to say the least. Most transport PFIs are on the balance sheet. Many hospital PFIs are not.

The result is a deep-seated public suspicion that disguising debt, and not advantages from transferring risk or better private sector management, is the real reason for for using PFI.

The labour government now has a chance to correct that impression, and allow private finance to show its genuine advantages, when it adopts IFRS in April next year.

IFRS says that most PFI projects should be off-balance sheet for the private sector. The logical consequence is that the public sector should put PFI on the books: the alternative – assets floating in the ether, owned by nobody – is intolerable. The Treasury should embrace, not resist, such an interpretation.

There will be consequences. First, as much as £30bn in off-balance sheet leases may be reclassified as borrowing, causing the government to break a self-imposed rule that limits public sector net debt to no more than 40 per cent of gross domestic product. But that, too, could be an opportunity: to replace increasingly discredited fiscal rules.

Second, in future new schools and hospitals will mean debt on the balance sheet, and there is a risk that the perception of indebtedness may lead to a fall in capital spending. It would be unacceptable – and bear out all the criticism of PFI sceptics – if major infrastructure projects such as London’s Crossrail suddenly became “unaffordable” because of new accounting standards. It will be up to the government to increase capital budgets to compensate for any such nominal changes.

After years of debate it is time for the test: put PFI on the balance sheet, and let it live or die by its merits as a financing technique.

From
http://www.ft.com/cms/s/f0aa9658-3bd9-11dc-8002-0000779fd2ac.html

Health Direct has long noted the tendency of stalinist Brown to flip flop on his financing policies, now we may have some consistency and clarity rather than fudge and obfuscation.