Supplementary memorandum by the Office
for National Statistics
1. At the hearing on 20 October 2009,
the Chairman asked ONS to provide a supplementary note setting
out the relevant figures relating to the balance sheet treatment
of PFI contracts. (Q137 and Q146 refer)
2. The notes below set out the relationship
between the total capital value of private finance schemes and
the related finance lease liabilities included within Public Sector
Net Debt (PSND).
(a) HM Treasury's PFI statistics [1] indicate
that, at April 2009, the total capital value of all signed schemes
was around £64 billion, including London Underground
public-private partnerships (PPPs). Of these, the value of those
currently operational or under construction is about £51 billion.
(b) About £25 billion of this total
are designated as on-balance sheet schemes, for the purposes of
the accounts of the public sector bodies concerned.
(c) As set out in an article in September 2007 [2],
the companies involved in the London Underground PPP schemes are
now classified by ONS as within the public sector. Accordingly,
the finance lease liabilities and assets relating to these PPPs
consolidate out within the public sector. The London Underground
schemes have a total capital value of around £18 billion.
Consequently, adjusting the total capital value of on-balance
sheet schemes to reflect this consolidation effect, leaves a capital
value of around £7 billion.
(d) This compares with estimated public sector
finance lease liabilities of about £5 billion at end-March
2009. Under the international conventions to which ONS works,
these are included in PSND.
3. The remaining difference between the
£7 billion capital value of schemes and the £5 billion
public sector finance lease liabilities is caused by a number
of factors, explained in a 2006 article [3]. These factors
include:
— Finance lease debt and capital value
are not the same thing. The capital value of assets for signed
projects includes forecasts of future asset values, where the
work may be incomplete or not yet started. These liabilities are
contingent therefore on the construction or improvement being
completed satisfactorily. Consistent with the international conventions,
contingent liabilities are not included in PSND.
— Timing of recording—where the accountants
and auditors judge the asset should be on the public sector balance
sheet, the transfer of economic ownership, and so the recognition
of the liability, will usually occur only when all of the construction
is completed and the asset becomes operational.
— The finance lease liabilities initially
recorded will reduce over time as repayments are made.
4. To give some context for these figures,
Public Sector Net Debt is now some £825 billion [4].
ONS has estimated that the overall effect of the financial crisis
interventions will be to add a further £1.0 to £1.5 trillion
to this total [5]. Work is underway to yield more precise estimates.
Office for National Statistics
November 2009
REFERENCES
[1] Available on the HM Treasury website at
http://www.hm-treasury.gov.uk/ppp_pfi_stats.htm
[2] ONS article, Classification of Metronet,
Tube Lines and the London Underground PPP, September 2007, by
Martin Kellaway and Helen Shanks
http://www.statistics.gov.uk/cci/article.asp?ID=1873
[3] Economic Trends, November 2006, "Including
finance lease liabilities in public sector net debt: PFI and other",
by Adrian Chesson and Fenella Maitland-Smith
http://www.statistics.gov.uk/statbase/Product.asp?vlnk=14692
[4] Public Sector Finances Statistical Bulletin—September
2009
http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=805
[5] ONS article, "Public Sector Interventions
in the Financial Crisis: Statistical classification decisions",
by Martin Kellaway, November 2009
http://www.statistics.gov.uk/CCI/article.asp?ID=2301&Pos=&ColRank=1&Rank=224
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