In March 2007, the Guardian reported that the introduction of International Financial Reporting Standards (IFRS) by the UK government would lead to as much as £30 billion of PFI project liabilities being added to public sector net debt (PSND) (Ashley Seager in the Guardian, March 4 2008, 25 - see also Ruth Sutherland in the Observer February 10, 2008). The newspaper argued that this would threaten one of the Labour Government's two fiscal rules, namely the rule limiting the debt (the PSND) to 40% of gross domestic product (GDP).
According to the Treasury's Pre-Budget Report of November 2008, the PSND-GDP percentage in 2006/07 was well below the 40 limit. It was about 36% (HM Treasury, November 2008, table B2 on page 189). PFI51 projects contributed only about £13 billion to this or a little over 1% of GDP52 (Kellaway, May 2008, figure 1). If a further £30 billion of PFI liabilities were to be added to PSND by changes in reporting standards, the PSND-to-GDP percentage would have been raised to something like 38 or even 39, thereby threatening to break the 40 limit.
But it is worth noting here that in 2006/07, the debt-to-GDP percentage was already above the 40% limit when measured according to the Maastricht Treaty. Maastricht debt is defined as general government gross debt. It includes the debt of public corporations but excludes public sector liquid assets. At the end of 2006, the general government debt-to-GDP percentage was already above 40 at 43 (ONS, 31 March 2008, page 1) ell above the 36% figure given in the Pre-Budget Report53.
51. In these notes PFI is used to encompass both Private Finance Initiative (PFI) and Public Private Partnership (PPP) projects.
52 . The majority of this £13 billion consists of debt in connection with the London Underground and with the Channel Tunnel Rail Link.
53 . For more on Government deficit and debt under the Maastricht Treaty, see Office of National Statistics, 31 March 2008.