6. Question 6-How should future payments by the Government under existing Private Finance contracts be recorded in public sector accounts? Is risk transfer an appropriate test? Should all such liabilities be included in the national debt? Should they be accounted for separately from government debt? How much does the public sector accounting treatment of capital and revenue aspects of projects matter?
6.1 The public sector should apply the same accounting principles as the private sector does when accounting for future PFI payments. The wider adoption of International Accounting Standards, and the harmonisation of public sector accounting rules between the EU and the UK, should enhance comparability and transparency. To the extent that risk transfer is a criterion to assess accounting treatment, it should be applied.
6.2 The accounting treatment of PFI projects should not influence the procurement approach to be used by the public sector-this should be based on which can provide the best VfM.
6.3 There is a tendency for misleading figures to be reported on PFI commitments, whereby aggregate commitments are quoted implying that this is equivalent to a debt already incurred by the public sector. In fact, a significant part of the commitment relates to the future cost of maintenance and the future cost of servicing debt in the project, which in traditionally procured projects will not be recognised until incurred.