A4.12 A PPP option will still register as part of total public sector debt, but in certain circumstances may make capital available at an earlier date than other options. Costs may be brought forward in time and will also impact on future spending. The costs should be counted at the point at which they will accrue to the accounts of the organisation responsible. To reflect the true cost of the PPP option, appropriate provision for the full cost of the additional capital should be included in Cost Benefit calculations. This involves including private finance charges as a cost to the public sector. Additional costs of privately financed options need to be fully offset by additional benefits before a PPP option demonstrates a favourable Benefit Cost Ratio comparable with a directly financed option.
A4.13 A "comparable" public sector option is required to provide a benchmark for comparison of direct public provision and partnership options on a level playing field. This requires that the comparable public sector option is based on the same quantity and quality of service provision and the same levels of asset maintenance. It is therefore necessary to make adjustments for effective tax rates rather than a theoretical maximum. If uncertain, please contact the relevant HM Treasury spending team in the first instance to discuss the correct approach.
A4.14 National Accounts treatment of PPP should not be a reason for project approval. However, as recording in departmental budgets follows the National Accounts then it is necessary to ensure the correct treatment of costs. The classification of PPP projects and other procurement options in the National Accounts have different budgeting implications and this should be reflected in the methodology used to assess affordability.
A4.15 It is the responsibility of the organisation to come to a view on the expected classification of a proposal in the National Accounts. It should take an informed view on classification from the outset, keep this under review as the proposal and contract negotiation develops and reflect this in any business case. The features of the proposal may change during its development, which could change its classification. The responsible organisation should retain the budget flexibility necessary to deal with any such change. If the organisation requires advice contact HM Treasury as per the Consolidated Budgeting Guidance.
A4.16 The UK National Accounting rules follow from the European Standard of Regional and National Accounts (ESA 2010) and the latest version of Eurostat's Guide to the Statistical Treatment of PPPs. The Manual on Government Deficit and Debt (MGDD) sets out the rules that classification of a programme or project depends upon.39 A project may be classified to the public sector in the National Accounts for various reasons, even where significant risk transfer is involved. The value of risk transferred should be included in the calculation of public sector costs and benefits and be included in the calculation of NPSV and sensitivity analysis.
_________________________________________________________________________________
39 The Manual on Government Deficit and Debt (MGDD) has been updated annually for several years, please ensure that the most up to date version is used.