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Wednesday, 13 May 2009

En-ron-ron-ron En-ron-ron

The Treasury has today decided that many private finance initiative projects will remain off the government’s balance sheet. It is not hard to see why. Public sector capital spending is budgeted to fall from £44bn ($68bn) this year to a £22bn a year in 2013-14. The billions of pounds of PFIs and PPPs that are in the pipeline would not be able to go ahead if they had to be included in those numbers.

Despite previous promises to move towards international financial reporting standards, the Treasury has now issued guidance to Whitehall departments indicating that, while PFI projects count on departmental accounts, a different accounting standard will apply for the Treasury’s budgeting purposes.

Yes, you read that right. The projects count on the balance sheet of individual departments, but when it coumes to drawing up the balance sheets for the whole government, they disappear. You could not make it up, but apparently they do.

About 60% by value of PFI projects lie off balance sheet, lie being the operative statement. Let us not forget that in many recent PFI projects the government has had to underwrite the project equity as well as contract as the end user. So if the contracting Department has successfully removed the risk in the contract it must have shifted the risk to the project (prop. HM Government). On the other hand, if the risk is not transferred and remains with the Department and is thus on the Department’s balance sheet (as per the Department’s accounts), it should consolidate onto the government’s books.

“Not so”, say the Treasury, “they don't because .... err .... because they don’t”.

Ken Lay would have been proud.

1 comment:

Demetrius said...

At last! At Last! Someone agrees with me. The government financial and economic policy is based on Enronomics. The trouble is that as a taxpayers I have shares in this whether I like it or not.