§ Lord Tebbitasked Her Majesty's Government:
Whether they know the total extent of off balance sheet borrowing and contingent liabilities of national and local government bodies through private finance initiative and public private partnership schemes. [HL6099]
§ Lord McIntosh of Haringey:It is estimated that by the end of this year the value of PFI/PPP contracts signed will increase private sector capital expenditure on public services to over £25 billion. Revised estimates are published annually in the Budget and updated during the financial year under arrangements agreed with the National Audit Office. This figure represents all signed PFI/PPP signed contracts. In accordance with the substance of individual contracts, some will be accounted for as on the public sector purchaser's balance sheet and some as off the public sector purchaser's balance sheet. But the final determination of the accounting treatment is made only in the financial year in which the contract becomes operational and subject to independent external audit.
Information on the accounting treatment of operational PFI/PPP schemes is contained in the accounts of individual public sector bodies. Contingent liabilities arising from PFI/PPP, such as guarantees, commitments or other rights obligations, are also disclosed in the notes to the accounts.
§ Lord Barnettasked Her Majesty's Government:
Further to the Answer by Lord McIntosh of Haringey on 23 October (HL Deb, cols. 1329–32), whether they will explain how the additional interest cost involved in going to the private sector is approximately 0.25 per cent of the total cost of construction and maintenance in private finance initiative projects; and whether there are any other additional costs. [HL6182]
§ Lord McIntosh of Haringey:I very much regret that the figure for the difference between the cost of public and private finance which I gave in my earlier Answer was based on an assessment given to the House of Commons last year which I am now advised was incorrect. I apologise to the House for this mistake. I am advised that it is not in fact possible to make a direct comparison between the absolute cost of raising PFI finance and the cost of conventionally financing a project, since PFI funding cannot be replaced by conventional funding without other aspects of a scheme changing, for example its capital cost.
Nevertheless, it remains true that the higher cost of PFI borrowing makes comparatively little difference to the overall cost of projects. Capital expenditure generally constitutes a relatively small part of the total 130WA costs of a PFI project (often around a quarter to a third), and the cost of private sector borrowing generally differs from the public sector's cost by between one and three percentage points, depending on market conditions and the risk profile of the project.