MPs to probe PFI

The Treasury select committee has launched an inquiry into the private finance initiative in an attempt to clear up the rules governing allocation of public-sector capital used to support schemes.

The move will parallel the government’s current PFI review, undertaken by Sir Malcolm Bates, which was launched last November.

The chairman of industrial distributor Premier Farnell has been asked to recommend changes which would improve the way in which public/private partnerships are run.

Evidence will be taken by the committee from prominent stakeholders later in the year. Consideration will be given to the PFI’s progress and the implications of its use for government expenditure.

Committee chairman Giles Radice will focus on the level of new systems for allocating capital expenditure, and the continuing commitment to current expenditure.

Radice has invited written evidence to be submitted by the end of June.

The move comes as accountants continue to wait for publication of the Treasury’s response to the Accounting Standards Board’s guidance on PFI accounting. The rules are expected to put deals onto the public sector’s balance sheet.

The Treasury is keen to ensure accounting treatment does not become the deciding factor in whether a PFI deal should go ahead, a view shared by most accountants.

Ernst & Young corporate finance partner Lindsay Allen said: ‘The government will be looking at an approach that respects the ASB, but its preference would remain for PFI not to be on the balance sheet. Saying that, there will be legitimate examples when PFI should go on the balance sheet. The basic message is to treat each deal on its own merits.’

Stephen Burgess, a member of the ASB’s public-sector committee, said it was not expecting the Treasury to object to the guidance.

‘We are expecting the response from the Treasury very shortly,’ Burgess said. ‘And I don’t expect there will be any problem with what they say.’

A Treasury spokesman said publication of the guidance was imminent, though he could not provide a date.