In July 2001, the NI Assembly's Committee for Finance and Personnel published a report on PPPs, arguing that private finance could provide additional resources to the amount funded by Treasury through the block grant. It stated that, "while the preferred source of finance is public finance because it can be provided at lower interest rates than private finance and ensures that responsibility for provision of public services remains within the public sector", PPPs would have to play some role in infrastructure delivery since "the Treasury is unlikely to meet all of the outstanding financial needs of NI from increased public expenditure in the short to medium term" (CFP 2001, p.5).
Using PPP to deliver additional finance was subsequently advocated by Mark Durkan, the NI finance minister in the first devolved administration. He told the Assembly that: "we do not wish to use public private partnership as some form of privatisation. The aim is to ensure that we maximise our public investment...in our circumstance the rules are clear: if we borrow, the full amount is deducted from our public expenditure block - we do not get the additional expenditure."3 He added that ruling out PPP would be "doctrinaire" as it would "limit our opportunities to provide services of a modern standard in the sort of facilities that people have every right to expect" (NIA, 2001).
To understand this argument, it is necessary to briefly outline the capital finance system in NI. Most public expenditure in NI is funded under the Assigned Budget,4 which is set by Westminster, under the Barnett Formula. This adjusts funding to reflect changes in per capita expenditure in England. The Assigned Budget provides funds for spending on services such as transport, health and education (i.e. those that are administered by the Northern Ireland Executive in devolution, and the Northern Ireland Office during direct rule). It is composed of a capital budget (money for investment in buildings and equipment) and a revenue budget (money for the provision of services).
Under this system, capital spending funded through the use of NI resources or through direct borrowing is tightly constrained. The capital used will count against NI's (very limited) capital budget, reducing the scope for alternative expenditure. In addition, there are ongoing capital charges on the investment that will, along with depreciation, count against the NI revenue budget. 5
In contrast, under current Treasury rules, so long as a PPP is off-balance sheet (i.e. the project is recorded as a contract for services rather than a financial lease in the public sector's accounts), there will be no direct impact on the NI capital budget, while annual charges count against the revenue budget as they are incurred. The effect of this is that, while capital spending faces two constraints, on both capital and revenue budgets, projects financed through PPP face only the latter. This is the source of the claim that private finance can deliver "additional" public sector investment.
In line with CFP recommendations, an inter-departmental working group was established and a report issued for consultation in May 2002. Reflecting the themes of the CFP's work, the report advocated limited use of PPPs for the purpose of increasing investment, with a social partnership approach involving trade unions and the voluntary sector in project decisions (OFMDFM, 2002).
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3 Under the Reinvestment and Reform initiative, agreed with HM Treasur in 2002, an (initially limited) power to borrow was provided, so long as this was paid for out of locally-raised taxation (Heald 2003).
4 This is the block grant from HM Treasury and accounts for more than90% of total expenditure in NI.
5 Public entities must pay the Treasury for the use of their buildings through annual capital charges.