An excellent piece in the Times (free registration required) on the balance sheet manipulations associated with public-private partnerships in the UK.

The National Audit Office (NAO) said that Network Rail was a state entity: its assets and liabilities should be kept on the Government’s balance sheet, because the Government would bail it out if it ran into difficulties. But the ONS classified Network Rail as private, on the basis that Whitehall did not directly control it. Despite the urging of the Statistics Commission, ONS and NAO have still not agreed: they have agreed to differ, on the flimsy basis that the ONS was governed by EU accounting rules while the NAO was not. Yet the Treasury seems happy to let the ONS’s view prevail, which has the useful result of reducing the national debt by something in the order of £25 billion.

The Treasury’s attitude to London Underground is similarly ambiguous. It has happily issued to Tube contractors letters of comfort, which are effectively a guarantee that the Treasury would be the lender of last resort, while claiming that private contractors deserve a healthy premium under the Public Private Partnership (PPP) because they are bearing the risk.

National institutions like hospitals and railways must be kept on the books because governments will never let them go bust.

I had a go at this topic, pointing out the similarities to the Enron fiasco, here.