H.M. TREASURY

103/99 24 June 1999

MORE PRIVATE FINANCE INITIATIVE (PFI) DEALS EXPECTED AS CLARITY OF ACCOUNTING STANDARDS IS RESOLVED - ALAN MILBURN

Further steps to improve the flow of new PFI hospitals and schools were unveiled by the Government today when Chief Secretary to the Treasury Alan Milburn published new accounting guidance on Private Finance Initiative(PFI).

Mr Milburn said that the revised guidance on PFI accounting transactions will remove ambiguity and build a platform of certainty and clarity upon which PFI can continue to grow.

Already this Government has signed 140 deals worth £4.7 billion since May 1997 including the largest programme of new hospital building in the history of the NHS, he said.

The document reflects extensive consultation between the Treasury and the accounting profession, including the Accounting Standards Board (ASB) and contractors, and offers the clarity of approach that the industry has been waiting for.

Mr Milburn said:

"The Government's commitment to partnership between the public and private sector has never been greater. The Government's new guidelines will make PFI work more effectively and more fairly. This will help deliver higher levels of investment to modernise Britain's key public services such as the NHS.

"By providing a platform of certainty, the new guidance will help the PFI continue to grow.

"Value for money deals go hand in hand with the key test of genuine risk transfer achieved under PFI contracts. This clarity of approach will enable the revised guidance to work in practice."

The Treasury's PFI Interim Accounting Guidance was the basis by which rules were first introduced for determining PFI accounting treatment in September 1997. Last year, the ASB published new principles for making such judgements in an Application Note. The ASB has said that the Revised Accounting Guidance is to be kept under review and updated as necessary in the light of developments in PFI to ensure that it remains both "useful in practice and is consistent with the ASB's Application Note".

NOTES FOR EDITORS

1. The Accounting Standards Board has provided the following statement for inclusion in this press release:

"The Accounting Standards Board has undertaken a review of limited scope of PFI Technical Note Number 1 (Revised). On the basis of its review, the Board is of the view that the Technical note is not inconsistent with the Board's amendment to FRS5 'Reporting the Substance of Transactions' in the form of application Note F 'The Private Finance Initiative and similar contracts', published in September 1998. As it states, the Technical Note should be read and applied in conjunction with the Board's Application Note.

"In view of the detailed nature of some of the contents of the Technical Note, the Board believes that the document should be kept under review and updated as necessary in the light of developments in PFI to ensure that the Technical Note remains both useful in practice and consistent with the Board's Application Note."

2. The revised Technical Guidance follows the ASB's Application Note in determining the balance sheet treatment on the basis of the relative risks borne by the principals to the PFI contract. The assessment of risk is, essentially, based on the potential for variation in payment/revenue streams relating to features of the property. This principle is not dissimilar to the approach adopted in the Treasury's interim guidance, but can be narrower in practical application. The revised guidance, following the ASB's Application Note, excludes the commercial consequences of purely service-related risks in the contract when looking for variability rather than the approach in the interim guidance which looked at all risks inherent in the contract.

3. During the CSR period the Government has said that it will generate £11 billion worth of investment on PFI deals.

4. The guidance will come into operation on 1 July. Copies of the revised guidance is available from the Treasury's Public Enquiry Unit on 0171 270 4558 or Adrian Murphy on 0171 270 4841. Press copies can be obtained from Malcolm Graves on 0171 270 5192. The document will shortly be available on the Taskforce website: www.treasury.projects.taskforce.gov.uk