Public sector feels PFI leasing pinch

The Government has effectively banned public sector managers for the first time from pursuing finance lease deals under the flagship private finance initiative.

The effect of the ban will force public sector organisations to pursue operating leases which keep the assets acquired under a PFI deal off the balance sheet.

‘This is the first time the Government has come clean and ruled out deals which are arranged using a finance lease,’ said Richard Haycocks, a member of the PFI unit at Ernst & Young.

Until now, the private finance panel, the Government agency which promotes the PFI, has refused to outline specific guidelines, claiming that each deal must be assessed separately.

Indeed, in its latest announcement, the panel has merely stated that public sector organisations must consult their professional advisors before issuing tender documents. But the panel has acknowledged that it expects professional advisors to prevent PFI deals that are funded using finance leases from seeing the light of day.

A spokesmen for the private finance panel said, that while it was still possible to consider a finance lease-backed deal, ‘I cannot envisage any circumstances where it could be justified because it would always be more expensive’.

The decision flies in the face of recommendations made by the head of the International Accounting Standards Committee Sir Bryan Carsberg, who called for the capitalisation of all leases with a term of one year. ASB chairman David Tweedie backed the proposals.

See Analysis on page 6.