Government accounting lambasted
The government is facing further accusations of 'Enron accounting' after it emerged that billions of pounds in debt have disappeared from the public balance sheet.
According to an analysis of capital commitments, current PFI deals have created £47bn in debt – equivalent to 15% of the £311bn net public sector debt.
The news came as the National Audit Office sought to clarify how £9bn of public debt would be accounted for following Network Rail’s acquisition of Railtrack.
And this at a time when rail crashes like this one last month near Gretna in Scotland continue to raise concern.
According to Maurice Fitzpatrick, head of economics at Tenon, the PFI capital debt would have been included in the government’s books if it had been straightforward public sector investment.
But under government practice, the ‘lease rentals’ paid for the asset, such as a school or hospital, is expensed, and the amount of PFI payments to be made in future years is noted in subsequent Budget ‘Red Books’.
Under private sector accounting, the value of an asset is capitalised when first leased, with the capital element of any payment made to the lessor shown as a liability. ‘It appears that government accounting is at variance from UK accounting standards as applicable to private sector leases of assets,’ Fitzpatrick said.