Whitehall clash looms over PFI for NHS hospitals
Some £30bn of PFI projects, chiefly in health and local government, are off balance sheet and do not count towards the government’s rule that borrowing should not exceed 40 per cent of gross domestic product. Were they to come back on, the sums are large enough to break the rule, potentially altering the government’s assessment of the public finances.
The impending switch to international financial reporting standards from this April is widely expected to have that effect. A meeting of FRAB, the financial reporting board that advises the government, is understood to have backed that shift at a meeting last week.
However, there are signs that the Office for National Statistics, the guardian of the national accounts, will not replicate that change. This would allow the Treasury to continue to ignore a large proportion of PFI debt.
The differing approaches would lead to conflicting incentives. The Treasury would have a strong motive to continue to favour PFI schemes, while departments would no longer care whether a project was privately or publicly financed as both could come on to their books and be subject to government capital charges.
Most Treasury officials originally assumed that new accounting standards would see schemes count as public sector net debt. But the latest ONS view is that this was premature. The ONS is required to follow European accounting methodology which sees many PFI schemes in other European countries sit off the government’s books.
The outcome is likely to be that ONS will have to evaluate every PFI project separately against European national accounts conventions.
