Magazine article Public Finance

Public Spending 'Will Be Safe under IFRS'

Magazine article Public Finance

Public Spending 'Will Be Safe under IFRS'

Article excerpt

Vital public investment will not be sacrificed merely to avoid breaching the sustainable investment rule when International Financial Reporting Standards come into force, Alistair Darling has indicated this week.

The chancellor signalled to senior backbench MPs that adoption of the standards, expected to see many Private Finance Initiative liabilities included in public sector net debt figures for the first time, would not mean the end of the substantial programmes of infrastructure investment seen in recent years.

Fears of public spending cuts have been heightened as Darling battles to meet the government's sustainable investment rule, which stipulates that PSND must remain below 40% of gross domestic product These were stoked by last week's Budget when he predicted that PSND would rise to 39.8% of GDP in 2010/11, just squeezing in under the threshold.

But during an evidence session on March 19, Darling told the Treasury select committee that he did not want the move to IFRS to lead to investment strategies being distorted.

"The PFI has enabled us to do a lot of building of schools and hospitals that we wouldn't otherwise have been able to do. I don't want us to get ourselves into a position where we reach decisions that no rational person would reach because of a change that might be made.'

Up to £30bn of PFI liabilities could be reclassified as public debt following the adoption of IFRS, which was delayed by a year to 2009 in the Budget because the Department of Health and the Ministry of Defence said they could not make the switch in time. That would be more than enough for PSND to shatter the 40% ceiling. …

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