Change in account rules could spell the end for PFI

The guidelines from the Accounting Standards Board, a private sector regulator, close a loophole which allowed services and property risk to be bundled together in the accounting for PFI.

The ASB has made it more difficult to transfer property assets and liabilities to a private investor in a bid to make contracts reflect the 'economic reality' that NHS hospitals built under PFI belong to the public sector.

The change means new projects are more likely to appear on the public sector balance sheet and count towards government debt.

Critics and supporters of PFI were united in their belief that the new rules, which have been accepted by the Treasury, will remove the main incentive for the health service to get involved in PFI.

Howard Lyons, head of the Institute of Health Services Management's PFI Watch, predicted that the ruling could finish off the scheme, which is already viewed within the health service and by private investors as time- consuming and complex.

'I don't think any more schemes will get off the ground. This just makes it impossible. What is the point of PFI now? At the end of the day you might as well build a new hospital with public money, because as the Treasury always says, 'you can't borrow cheaper than from the government'.'

But Mr Lyons added: 'I am depressed at anything that makes PFI more difficult because it's an excellent concept.'

Mr Lyons called on the government to come clean about PFI in the NHS. 'If they are going to scrap it then let's not waste any more time on it,' he said.

The Treasury attempted to minimise the significance of the ASB ruling and said a contractor's ownership of the assets would, in most instances, continue to be recognised. Treasury guidance will continue to apply until 1 January 1999, when the ASB ruling takes effect.

The government has also decided to flout conventional practice by refusing to make retrospective changes to signed deals and schemes which have reached the 'best and final offers' stage of the process.

'For newer projects, even with good procurement and delivery times, any changes following the new principles would not have a significant impact until 2001-02 at the earliest,' insisted paymaster general Geoffrey Robinson.

ASB project director Kathryn Cearns said that the question of whether PFI represented value for money should be kept separate from the issue of accounting treatment.

'To get a hospital built could still be cheaper using PFI, even if the government has to recognise it on its balance sheet.'

But Unison deputy head of health Malcolm Wing was confident that the ruling meant 'the beginning of the end' for PFI in the health service.

'The ASB has revealed what we always knew to be the case - PFI is an accounting scam,' he claimed.