UK could be forced to bring Priority Schools spending onto government balance sheet

InfraNews reported that the Office for National Statistics (ONS) was currently reviewing the status of the programme following changes to the way in which EU statistics office Eurostat classifies public-private partnership (PPP) projects. Last month, the ONS ordered the Scottish government to reclassify the Aberdeen Western Peripheral Route (AWPR) bypass as a public asset after finding that most of the risks relating to the project lay with the public sector.

Projects expert Michael Watson of Pinsent Masons, the law firm behind Out-Law.com, said that it would be "disappointing" if the rule changes delayed the pipeline of projects being brought forward by the various UK governments. The Welsh government is due to announce a programme of PPPs funded using a non-profit distributing (NPD) model, similar to that in use by the Scottish government, he said.

"The accounting treatment is but one factor that makes well-procured projects which effectively encourage good partnering between private and public sector a good procurement model – the delivery of projects on time, in budget and properly costed for their whole life being others," he said. "The Scottish Government and Scottish Futures Trust have been successful in promoting a clear, visible, well-competed pipeline of projects, and it would be a shame to see this issue causing a delay."

Under the European System of Accounts (ESA10) tax accounting rules, assets are deemed to be public if the government has significant control over them. The new rules took effect across the EU from September 2014; 18 months after the Scottish Government published the tender notice for the AWPR in the Official Journal of the European Union (OJEU).

Eurostat's technical guidance on ESA10 sets out the factors that should be taken into account when deciding whether a body or asset is controlled by the public sector, and so should be included on the national balance sheet. These can include the relative degree of public and private sector control over the governance of the project, and the balance of risk and reward shared between public and private sector partners.

In July, the ONS said that the Scottish Government had "economic ownership" of the AWPR. It also ruled that special purpose vehicle (SPV) companies set up by the Scottish Futures Trust (SFT) to run and control the projects were also publicly controlled. The NPD model developed by SFT, which is the Scottish Government's private financing agency, caps the amount of profit that can be returned to the private sector throughout the life of an asset.

The UK government is procuring the construction of 46 new schools from the private sector in five 'batches' as part of the Priority Schools Building Programme. The public sector's share of the funding for these schools will be raised through an 'aggregator' model, to be managed by a fund manager on behalf of the Education Funding Agency (EFA). Construction work is being procured through the UK's new PF2 model of public-private financing, through which the government holds an equity stake in the asset and can receive a share of the profits.