Private Finance Projects and off-balance sheet debt - Economic Affairs Committee Contents

Memorandum by the Office for National Statistics


  This memorandum sets out the way ONS handles Private Finance Initiative (PFI) projects in respect of the National Accounts and public finance statistics. It relates primarily to the issues raised in Question 6 of the inquiry:

    — "How should future payments by the Government under existing Private Finance contracts be recorded in public sector accounts?

    — Is risk transfer an appropriate test? Should all such liabilities be included in the national debt? Should they be accounted for separately from government debt? How much does the public sector accounting treatment of capital and revenue aspects of projects matter?"


  The UK National Accounts are produced according to international statistical guidance laid out in the European System of Accounts (ESA95) which itself is based on the international System of National Accounts (SNA93). ESA95 is supplemented by further guidance on the treatment of PFI contracts within Eurostat's Manual on Government Deficit and Debt (MGDD). The public finances statistics include Public Sector Net Debt (PSND), and are constructed consistently with the National Accounts.

  The international statistical guidance and the accounting guidance on PFI contracts followed to date by departments and public bodies are broadly similar. This has enabled ONS to make use of the independently-audited accounts of public bodies, and of relevant private corporations, in the compilation of the National Accounts and public finance statistics: The MGDD confirms that the ONS approach of making use of public sector accounting data for PFI reporting purposes is generally in line with its guidance, stating that "There are rules based on Generally Accepted Accounting Practice (GAAP) and on other International Standards, applied by private business to some of these arrangements. These seem to be quite consistent with the substance of ESA95 and, apart from borderline cases, they are likely to give similar results as regards the classification of assets".

  In 2006, public sector finance lease liabilities relating to PFI contracts were first included in PSND. This increased the total by around £5 billion. One development that has required attention is the adoption of International Financial Reporting Standard (IFRS) in the accounts of public bodies from 1 April 2009. This requires accounting practice that is both different to previous UK GAAP and to the required National Accounts treatment. In September 2009, following consultation with ONS, the Treasury provided technical guidance to departments requiring them, from 1 April 2009, to report on both an IFRS and an MGDD basis for PFI contracts where the public sector's recording of PFIs under each of these accounting bases would differ. This should give ONS the appropriate data sources to record PFI payments, assets and liabilities in government current and capital expenditure, and in balance sheets. ONS will keep the adequacy of this approach under review.

  ONS has recently published an article "Government financial liabilities beyond public sector net debt" (see 3.iii below) which includes a number of recommendations, including proposals for production of an expanded explanation of public sector liabilities. As part of this work, ONS will further address the issue of PFIs in statistical publications.


  The issue of Private Finance Initiative (PFI) schemes, as they affect published official statistics, has been the subject of a number of ONS published articles. Recent articles can be found at the following locations:

    (i) Nov 2006 Economic Trends article, "Including finance lease liabilities in public sector net debt: PFI and other", by Adrian Chesson and Fenella Maitland-Smith.

    (ii) May 2008, Economic & Labour Market Review article, "Private finance initiative and public debt", by Martin Kellaway:

    (iii) July 2009, Economic & Labour Market Review article, "Government financial liabilities beyond public sector net debt":

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