5.15 For the reasons set out above, classification to the public sector means that the assets, liabilities and transactions of the body will impact on the overall government fiscal position. Public sector bodies are therefore required to budget for public sector entities for which they are responsible. HM Treasury's consolidated budgeting guidance provides further details.45
5.16 It is important to remember that a classification in the public sector does not make the public sector body participant liable for the JV's debts, any more than a private sector classification makes the private sector founder liable. The existence of limited liability follows from the legal set-up not from how the structure is accounted for or presented in the national accounts.
5.17 The main implications of public/private classification are set out in Box 5.B below.
Box 5.B: Main implications of public/private classification ● Public expenditure controls and accountability: public sector bodies may be subject to Parliamentary scrutiny, Managing Public Money principles, public expenditure control and disclosure requirements (including requirements of the Public Records Act and the Freedom of Information Act). For private sector JV companies, parliamentary accountability would usually be restricted to public money invested or granted to the venture. A key benefit would be greater flexibility in the use of private sector funding. ● Attractiveness to private sector participants: a private sector classified JV entity is likely to be perceived as more attractive to private sector participants who may otherwise be concerned about the potential for political interference and public sector controls fettering the JV's ability to operate effectively. The use of a CIC or CLG may however be less attractive than other JV structures. ● Public sector interests: public sector classification implies a greater degree of control by the public sector body as participant; however, a private sector classification could still allow sufficient scope to secure public sector financial and other interests through the JV's founding documents, e.g. through use of a deadlocked structure. |
5.18 Classification issues may have different implications for different public sector bodies, in particular local authorities may arguably be less sensitive to the impacts in borrowing and capital expenditure terms since the introduction of the prudential borrowing framework. Nevertheless, a local authority may still be subject to revenue consequences.46 Classification is still relevant in determining the extent to which local authority propriety rules should apply to the JV if it is deemed a regulated entity.47 48
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45 HM Treasury Consolidated Budget Guidance 2008/09 available from: www.hm-treasury.gov.uk/d/consolidated_budguid010208.pdf.
46 See also Part 6 of the Local Authorities (Capital Finance and Accounting) (England) Regulations 2003 as subsequently amended.
47 As governed by Part 5 of the Local Government and Housing Act 1989 and the Local Authorities (Companies) Order 1995.
48 HM Treasury has a reserve power in Part I of the Local Government Act 2003 to impose borrowing limits on Local Authorities.