Reaction to the news has been mixed. The ASB, of course, is pleased; it will help to ensure that the motivation for PFI contracts - which cover major building contracts from hospitals to bridges and roads - is good value, rather than moving financing off the balance sheet.
The Paymaster General, Geoffrey Robinson, is - at least in public - saying the same. Above all, PFI is driven by value for money and not by accounting treatment, he says.
But things are not as clear as they seem. For one thing, the Treasury is not implementing the rule change until the new year. For another, PFI deal-makers briefed by Adrian Montague, head of the Government's PFI task force, say that, when the Treasury guidelines implementing the changes are published, there may still be room for disagreement with the ASB over accounting treatment.
Allan Cook, technical director of the ASB, is aware of possible continuing problems. He says: "The Treasury guidelines will have to be watched fairly carefully." Although the ASB has no formal role in overseeing public sector accounting practice, the Treasury's recognition that the ASB position on PFI accounting is correct means that the board has a proper role in ensuring that the guidelines are acceptable to it, suggests Mr Cook.
The ASB is introducing the rules for private sector PFI-type contracts immediately, which will affect contracts already signed. It is cool about the Treasury's decision to delay implementation. "That has to be the Treasury's decision," says Mr Cook. "We don't set rules for the Government, but they do try to adhere to private sector standards wherever possible. If they feel they cannot apply them retrospectively, even so, we would say that's up to them. They have to justify that. If a PFI deal is close to implementation, they may say that it is dependent on a particular accounting interpretation."
David Davis MP, chairman of the House of Commons Public Accounts Committee, takes a stronger line. "The proposal is to apply to new PFI schemes, but not to existing ones," he says. "I don't see the logic in this. It is not intelligent if you accept that the risk should be accepted in the Government's accounts - which is my position anyway. I don't think they should go back and rewrite last year's accounts - which I think is how the Government is trying to blur the issue - but you should treat all schemes the same."
As far as private finance advisers are concerned, damaging uncertainty continues. Martin Deutz, assistant director of KPMG's corporate finance division, says: "I think this will change the basis of the way that some of the deals are done, and it may make some more expensive. It will depend on the extent to which the Paymaster General and Adrian Montague are able to continue to say that the important thing is value for money, and if this is achieved, deals can be on-balance-sheet. But not many deals have been done on-balance-sheet so far. So is this just something they are saying as consolation? Will the deals still be authorised? If they are, it won't make any difference - but that is up to Gordon Brown. It is genuinely too early to say. In the NHS there is an element of volume risk that will require more equity in the schemes. I think this will make them more expensive, but they will carry on."
The main worry of auditors - including commercial firms and the public sector audit bodies, the National Audit Office and the Audit Commission, as well as the ASB - is that PFI deals may have been driven by taking financing off the balance sheet, at the expense of higher overheads and more expensive borrowing. This is reflected in the Audit Commission report, Taking the Initiative, which warns NHS trusts and local authorities against assuming that PFI is the only way to finance capital assets.
"Given the potential sums of money and long terms of these contracts, it is important that PFI is seen as a procurement option, integrated within a proper planning process," says Keith Douthwaite, of the commission's audit support directorate. The commission is concerned that the long- term costs of PFI contracts may be overlooked, and insists public bodies it audits must compare PFI costs against other service and asset provisions.
Whether or not the position on accounting treatment of the PFI has now been finally resolved, the ASB's trenchant line seems to have been vindicated. There is speculation, though, that in the end its success may have owed less to the force of the ASB's argument, than to the collapse of the Far East's economy.
Last month, Tony Blair told the Group of Seven leading economic nations that the best way to prevent future global economic crises was to ensure that all nations adopted the same accounting standards, not just in the private sector, but for governments and other public bodies as well. Greater accounting transparency, he argued, would improve lending decisions, and highlight excessive and unaffordable borrowing.
Extolling accounting standards harmonisation to the rest of the world while rejecting it at home would have been embarrassing for Mr Blair. This just may have been the factor that drove the Treasury to accept greater transparency in its own accounts.Reuse content