Fury at £43bn private finance 'fiddle'

Opposition angered as Government keeps virtually all PFI projects off the public finances
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The Independent Online

Almost all of the £48bn tied up in the controversial private finance initiative (PFI) will be kept off the public finances, the Government's statisticians ruled yesterday.

The decision triggered a furious reaction from opposition politicians who accused ministers of "hiding" the debts. It came as official figures showed a record public finance deficit for an August while the European Commission said there were "significant uncertainties" that the UK would stay within EU limits.

The Office for National Statistics said it had added £4.95bn to the stock of public debt following a review of some 700 projects. The remaining PFI debt, estimated at more than £43bn, stays with the private sector.

However, the validity of the figures was cast into doubt after it emerged just five of the 149 hospital and health PFI projects signed by the Department of Health would be included on the Treasury's books.

The ONS initially said no hospital in England and Wales had been scored against the public finances but admitted it had "misallocated" five NHS projects after the issue became a political hot potato. A senior ONS official admitted the figures might "raise an eyebrow". The ONS said its analysis was based on rulings by accountants in each Whitehall department on whether "economic ownership" had passed to the private sector in the deal, stressing those decisions were audited by independent watchdogs.

The decision takes the stock of debt to £424.5bn or 36.7 per cent of GDP, leaving it well below the 40 per cent limit under Gordon Brown's sustainable investment rule. In theory, the full £48bn could have added a full percentage point to debt.

George Osborne, the shadow Chancellor said: "This is yet more evidence that the public finances are in a worse state than Gordon Brown has admitted.

"There is now, even on the Government's own figures, a real risk that the sustainable investment rule could be breached."

Vince Cable, the Liberal Democrat Treasury spokesman, said: "Hospital PFIs have given PFI a bad name, because many projects were undertaken for the wrong reason as a way of hiding Government debt. This debt will have to be paid.

"This underlines how important it is that government statisticians, including the ONS, should be brought together in a fully independent organisation where they are free from political interference and pressure to disguise the truth about government debt."

The Treasury said PFI contracts were assessed by accountants "using recognised standards". A spokesman said the decisions were "scrutinised" by the National Audit Office, Audit Commission or the equivalent body in Wales or Scotland.

Fenella Maitland-Smith, the head of national expenditure and income at the ONS, said it would look at the issue of PFI hospitals. "We haven't had the resources to say whether this is something that should make us raise an eyebrow," she said.

John Hawksworth, the head of macroeconomics at the accountants PwC, said the ruling had "defused" the danger of debt breaching the 40 per cent limit.

Separately, official figures showed public sector borrowing rose to its highest last month for any August since records began in 1993. Net borrowing of almost £7.6bn came in above forecasts of £5.3bn and nearly £2bn more than August 2005. The European Commission said Mr Brown needed to take more steps to keep the deficit below the 3 per cent EU limits by March 2007. The Treasury spokesman said: "We are meeting our strict fiscal rules and will continue to do so."