1.8 The accounting treatment of PFI projects in the UK National Accounts is determined by the European System of Accounts 1995 (ESA95) framework. The ESA95 framework is followed by all members of the European Union and is set and enforced by Eurostat.
1.9 The Manual on Government Deficit and Debt (MGDD), which aids the application of the ESA95 framework specifically for Government, considers the relative balance of construction, demand and availability risk of a project in order to determine the balance sheet treatment. Departments are responsible for determining the classification of projects for both departmental accounts and budgets which since 2011-12 have both been independently verified through the annual audit or department financial statements. Contracts are also made available to the independent Office for National Statistics as required to check that they are classified in accordance with the MGDD.
1.10 If the public sector carries construction risk, the asset is viewed as being on the public sector balance sheet for the purposes of the National Accounts. Where the private sector holds construction risk and one of either demand or availability risk, the asset is not considered to be on the public sector balance sheet for the purpose of the National Accounts.
Box 1.A: Departmental accounting for PFI projects Departmental accounts are based on International Financial Reporting Standards (IFRS), which determine the treatment of projects by assessing which party has control of the asset. The classification of a lease as finance (on balance sheet) or operation (off balance sheet) is based on the control of project ownership. Around 90 per cent of PFI projects are classified as on balance sheet under IFRS. In certain cases, the ESA95 and IFRS accounting standards are not aligned for the public sector and this is the case for PFI. The Government has published the Whole of Government Accounts (WGA) which transparently presents PFI liabilities under IFRS. WGA shows that the present value of future PFI obligations, including service charges, is £144.6 billion (2010-11). |