ICAEW chart of the week – PFI contracts

This Chart of the Week follows on from our promise to look into how we might construct an estimate of the financial implications of terminating the current PFI deals.

It’s not a straightforward exercise – while the debt liabilities with PFI are well recorded, without access to all of the contracts, we have had to make an educated guess at the sub-contract breakage costs and the compensation for lost profit based on our knowledge of standard SoPC terms, which may not apply to all contracts.  In doing so we believe we have erred on the side of caution, so the bill for an authority termination could potentially be higher.

We have better data for the debt associated with PFI however, so we are reasonably confident that the amount that would need to be refinanced is of the right order of magnitude. 

While an additional £89bn does not represent a large proportion of the outstanding National Debt of nearly £1.8 trillion, it would be a further step in the wrong direction for the already highly leveraged UK state and add to the challenge the Chancellor faces in meeting his fiscal mandate.  It would also increase the government’s refinancing requirement over the next five years to approximately £740bn – nearly three quarters of a trillion pounds – where the government is exposed to the risk of changes in interest rates. 

With the era of very low interest rates and inflation drawing to an end I am struck, that much like with comedy, when it comes to debt-raising, ‘timing is everything’.

For further information and to comment, visit the ICAEW Talk Accountancy blog.

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