HISTORIC PRESS RELEASE : Geoffrey Robinson Welcomes Accounting Clarification of PFI [September 1998]

The press release issued by HM Treasury on 9 September 1998.

Paymaster General Geoffrey Robinson today welcomed the long awaited publication of the ASB’s guidance on accounting for Private Finance Initiative (PFI) contracts.

Mr Robinson said:

“When we took office I was determined that the PFI  should be reinvigorated.   One of  the key problems spotlighted in the review I commissioned from Malcolm Bates was the absence of clear accounting guidance and in response the Treasury  published interim guidance on the accountancy treatment of  PFI  transactions last September”.

“Since then, we have worked closely and constructively with the ASB and there has been a convergence of views.  I welcome and accept the principles  published today by the ASB, giving greater clarification about how the asset underpinning the service to be delivered should be accounted for.”

“I am putting in hand the preparation of new guidance that will apply these principles in a way that will ensure consistency and cost effective compliance throughout the public sector.  We shall  be consulting widely with the Office for National Statistics, accounting profession, the public sector and contractors. The aim will be to make the new guidance effective from 1 January 1999.  Until then the existing Treasury guidance will continue to apply.”

“There will be  no  retrospective changes to signed deals and those out to “Best and Final Offers” will not be affected.  For newer projects, even with good procurement and delivery times, any changes following the new principles would not have a significant impact until after 2001 – 02 at the earliest.

“Above all, PFI is driven by value for money and not by the accounting treatment.”

The approach taken in the Application note is not dissimilar to that contained in the Treasury’s own guidance.  The main difference is that the ASB considers that judgements about capitalisation should  exclude those  stemming purely from the service.  During the period of consultation the Board has clarified its position to indicate  a broader view of the interaction between service risks and the design, construction and operation of the asset.

The Treasury’s initial view, given the broadening of view taken on asset related risks in the Application Note, is that substantially all the risks transferred to the private sector  will continue to be recognised in the determination of accounting treatment. While neither HM Treasury nor those drafting the Application note have worked out how their principles will be applied in practice, the Treasury does not expect capitalisation judgements to change greatly and that the  private sector contractor’s ownership of the asset will in most instances continue  to be recognised.