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Old 27th Jan 2008, 16:59
  #16 (permalink)  
Squirrel 41
 
Join Date: Nov 2004
Location: UK
Posts: 932
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Anorak Mode <<ON>>

I hate to be a finance anorak, but the on-balance sheet / off balance sheet hasn't got a great deal to with Resource Accounting (RAB) but quite a lot to do with the famed Golden Rule of then-Chancellor Gordon Brown.

As knowitall has (rightly!) said, the big presentational benefit of PFI for the government is that the contractor borrows the money and therefore it isn't public debt and therefore doesn't appear in the Public Sector Borrowing Requirement (PSBR).

Add in the "Golden Rule" (authors: G Brown and E Balls), which says that over the economic cycle UK will only borrow to invest (ie, no debt for provision of services in any one year), and that the level of debt will be "prudent" ie, c. 40% of GDP (vs 100%+ in Italy and 140%(?) in Japan), then the attraction for 3bn (0.2-0.3% of GDP) of debt on someone else's balance-sheet (AirTanker, in this case) is very attractive as it "isn't" public debt. (I would violently disagree, but who am I? Merely a taxpayer, of course).

The problem is that PFI = renting something, which is always going to be more expensive than buying it, as (i) companies borrowing money is more expensive than the government, because their credit rating is lower and (ii) they need to make a profit.

In short PFI only makes sense if the amount of cost over-run you expect from incompetence in the public sector is greater than the additional cost of borrowing and the profit you expect the private sector to make.

Note to 10 Downing Street,

Dear Prime Minister,

For F's Sake, Gordon, borrow the bl**dy money and buy the damn things! And whilst you're at it, we'll have 20 x KC-30B with RR Trents, there's a good chap.....

Your sincerely,

S41

Anorak Mode <<OFF>>

Last edited by Squirrel 41; 27th Jan 2008 at 17:04. Reason: Hit send too soon.... muppet!
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