PFI Debt- Slightly Uncooking The Books

July 27, 2007 4:52 PM


The Financial Times reports today (here and here) that up to £30bn of PFI debt may shortly be reclassified back to where it belongs- on the government's balance sheet. As BOM readers will know, up until now Mr Brown's Enron style fiscal accounting has massaged most of it away (see many previous blogs, eg here).

The FT reports:

"Billions of pounds worth of private finance initiative projects are poised to come back on to the government’s balance sheet.

The move [is] the result of the government’s promise to adopt international financial reporting standards for public accounts from next April...

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."

So hurrah?

Well, it will certainly mean the official definition of the National Debt is a bit closer to the truth. But only a bit.

The reality is that £30bn does not come close to the true PFI liability we taxpayers have incurred. Last time we did a detailed calculation, we got to £90bn, and it's increased since then- let's call it a round £100bn.

The difference is probably caused by that pernickety distinction between finance leases and operating leases (see here), with operating leases still being excluded. The argument is that the private sector does the same thing. But as our Canary Wharf correspondent pointed out here:

"Although Operating Leases are off-balance sheet under most GAAP schemes (so many companies do the same trick), credit rating agencies recapitalise them and count them as debt when establishing a credit rating. So this will come back to sting the government (sooner than the actual debt will)."

What we taxpayers are concerned about is whether we are committed to pay- which to all intents and purposes, we are- not some nit-picking technical nomenclature that still lets the government ignore the bulk of PFI liabilities.

What's more of course, even if the whole of our £100bn PFI debt moved back on balance sheet, that would still mean the official figure for the National Debt was grossly understated. In particular, it would still fail to account for the £1 trillion of public sector pension liabilities. BOM calculates the true total for our National Debt is around £1.7 trillion, or £70,000 for every British household (see here).

The FT argues that Darling shouldn't oppose the inclusion of the PFI debt, even though it will embarrassingly mean busting Brown's rule that official debt must not exceed 40% of GDP. As the FT points out, Brown's meaningless rules have zero credibility anyway.

The reality is that Gordon Brown has saddled us with an ocean of debt that we'll be struggling with for decades. Fessing up to £30bn will mean the forthcoming squeeze on public investment will be that much tougher (as the FT notes), but there's a lot more bad news still to come.

Sadly, taxpayers ain't seen nothing yet.

The Financial Times reports today (here and here) that up to £30bn of PFI debt may shortly be reclassified back to where it belongs- on the government's balance sheet. As BOM readers will know, up until now Mr Brown's Enron style fiscal accounting has massaged most of it away (see many previous blogs, eg here).

The FT reports:

"Billions of pounds worth of private finance initiative projects are poised to come back on to the government’s balance sheet.

The move [is] the result of the government’s promise to adopt international financial reporting standards for public accounts from next April...

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."

So hurrah?

Well, it will certainly mean the official definition of the National Debt is a bit closer to the truth. But only a bit.

The reality is that £30bn does not come close to the true PFI liability we taxpayers have incurred. Last time we did a detailed calculation, we got to £90bn, and it's increased since then- let's call it a round £100bn.

The difference is probably caused by that pernickety distinction between finance leases and operating leases (see here), with operating leases still being excluded. The argument is that the private sector does the same thing. But as our Canary Wharf correspondent pointed out here:

"Although Operating Leases are off-balance sheet under most GAAP schemes (so many companies do the same trick), credit rating agencies recapitalise them and count them as debt when establishing a credit rating. So this will come back to sting the government (sooner than the actual debt will)."

What we taxpayers are concerned about is whether we are committed to pay- which to all intents and purposes, we are- not some nit-picking technical nomenclature that still lets the government ignore the bulk of PFI liabilities.

What's more of course, even if the whole of our £100bn PFI debt moved back on balance sheet, that would still mean the official figure for the National Debt was grossly understated. In particular, it would still fail to account for the £1 trillion of public sector pension liabilities. BOM calculates the true total for our National Debt is around £1.7 trillion, or £70,000 for every British household (see here).

The FT argues that Darling shouldn't oppose the inclusion of the PFI debt, even though it will embarrassingly mean busting Brown's rule that official debt must not exceed 40% of GDP. As the FT points out, Brown's meaningless rules have zero credibility anyway.

The reality is that Gordon Brown has saddled us with an ocean of debt that we'll be struggling with for decades. Fessing up to £30bn will mean the forthcoming squeeze on public investment will be that much tougher (as the FT notes), but there's a lot more bad news still to come.

Sadly, taxpayers ain't seen nothing yet.

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