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
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
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