Tuesday 25 September 2007

Down the Tubes: PPP Slowly Coming Unstuck for Brown

Just as unexpectedly awful public finance figures are released, in turns out the Office of National Statistics was not initially being given the whole picture on Metronet and Tube Lines, two of McBroon’s little ‘off-balance sheet’ PPP schemes. The ONS had not been made aware that London Underground Ltd – part of the public sector - holds a Special Share in both ‘private’ companies. Nor was the ONS aware of the extent of London Underground’s powers of control over the two firms “which have been in place since the [PPP] contracts were signed” in 2002-03.

This degree of control is sufficient for the ONS to reclassify the two as public corporations with retrospective effect from those historical dates: you can read their 19-page judgment here. (This reclassification has nothing to do with Metronet going into administration, incidentally.)

Then comes the pay-off. “The inclusion of Metronet and Tube Lines in the public sector leads to changes to the key public sector finance statistics: public sector current budget (the Golden Rule measure), public sector net borrowing, and public sector net debt (the Sustainable Investment Rule measure). The ONS considers the net impact will be "relatively small".

The real point, however, must surely be that they were kept in the dark, and only stumbled upon these Special Shares, four years after the fact, during their own researches.

What else has the Kirkcaldy Coward kept from them ?


Footnote: apparently the Government guarantee for Northern Rock will not be appearing on the national balance-sheet because it is merely a contingent liability. So – just ‘notes to the accounts’, eh ? Ask Enron shareholders about that approach …


Old BE said...

And because of the Tube brown-up we won't get our Crossrail either.

Nick Drew said...

Ed - isn't Crossrail part of our Olympic commitment (Heaven help us) ?

Anonymous said...

"This reclassification has nothing to do with Metronet going into administration, incidentally"

Hmmm, are you sure about that? I suspect that the fact that Metronet has gone into administration means that the creditors are now looking to get their money directly from the government, so there is no real hiding the fact that this is really government debt, (just as it has been all along of course).

Lets face it, the rules are conveniently wrong. The debtor is the one that has to pay the debt, not the one that holds the debt. Imagine if I were to say "Oh, I'm not in debt -my mortgage is owned by Standard Life so they are the ones with the debt".

Of course, there was a time when NuLabour, the ONS and the Audit Commission all shared the same home in Millbank Tower. Part of the Left's "Long March through the Institutions"? The possibilities for incestuous corrupt political relationships are endless, just as we have seen with NuLabour's relationship with the BBC.

Still, bullshit can get you to the top but it can't keep you there. I should imagine they are about ready for a hard fall. And all the kings horses and all the kings men will never be able to put NuLab together again.

Nick Drew said...

anon @ 9:34 - yes, it's always interesting when folks like the ONS National Accounts Classification Committee turn on the Govt in such a fashion. Praise the Lord for honest men ...

... even if we might hope for a bit more pro-activity. A propos of which, they've written to the Treasury, as follows:

"This case was opened when ONS discovered the existence of the special share and investigated the extent of the powers in it. I would be grateful if you could research whether these shares, and those the Government holds in LCR and its subsidiaries, are exceptions to the general contracts for PFI and identify if there are more cases that ONS should investigate": the follow-up could be interesting !

On your comment re: Millbank connections - you know that in the mid '90s, NuLab also had a small office in 4 Millbank (as opposed to Millbank Tower), alongside the BBC's Westminster team and ... Enron !

One for the conspiracy theorists.

Anonymous said...

"On your comment re: Millbank connections - you know that in the mid '90s, NuLab also had a small office in 4 Millbank (as opposed to Millbank Tower), alongside the BBC's Westminster team and ... Enron !"

Can't say I'm surprised. But you only need to go through the BBC employee profile and check against the bio's on Wikipedia to see just how many Beeboids come from a Labour background (or very often, even further to the left than that).

Mark Wadsworth said...

Good research.

But it's the one trillion pound undisclosed public sector pension liability that worries me.

Even the Sun picked up on this in their recent EU referendum issue.

Nick Drew said...

Mark - thanks: and agreed on the Trillion. Surely there will come a point where some future Govt will have to renege on those pensions ? Probably by quietly un-indexing them, then inflating them out of existence.

I have posed several times my 'Enron economics' conundrum: how far does this parallel extend, and if McBroon's phoney 'off-balance-sheet' stuff comes home to roost, does it mean a structural collapse ?

I think the answer is: actually, 'Enron economics' is just a term of abuse for a silly piece of presentational game-playing by Mr I-Don't-Do-Spin, because everyone knows it's sovereign risk au fond. But I'm always in the market for a more scandalous, pessemistic analysis !

Sackerson said...

Re contingent liabilities: Benjamin Graham's "The Intelligent Investor" notes that in the USA also, government guarantees aren't counted as debt. E.g. (presumably) government backing of lenders such as Fannie Mae and Freddie Mac.

Nick Drew said...

Sackers - I suppose, to be fair, while they still have the power to raise taxes they have 'contingent assets' as well, at least in the short run.

On the other hand, as I understand the principles of accounting (and I'm not an accountant), the conservatism principle means you should recognise future losses that can be anticipated, but may not anticipate future gains ...

Mark Wadsworth said...

One trillion is NPV under GAAP. All countries do this fiddle, I believe.

To be fair, the annual cash cost is £30 bn rising to £60 bn over next few decades, which is not affected whether you account for it or not. Neither does govt account for NPV of future tax receipts to cover it.

But yes, these pensions are way too generous.

Old BE said...

ND- Crossrail wasn't included in the Olympic commitment because even if the funding had been ready in time it will still take ten years to build it. At least.

Do you remember when road maintenance was reclassified as investment rather than spending to fudge the Golden Rule?

Nick Drew said...

Ed - so that puts it squarely in the 'this year, next year, sometime, never' category, I suppose.

Yes, I do remember that reclassification. I am rather hoping (see my comment @ 10:50 this morning) that the worm has turned !

We need all the checks & balances we can get

Anonymous said...

"I have posed several times my 'Enron economics' conundrum: how far does this parallel extend, and if McBroon's phoney 'off-balance-sheet' stuff comes home to roost, does it mean a structural collapse ?"

Interestingly the CIA World Factbook 2007 gives the UK GDP as about $2trillion and the total external debt from all sectors of the economy as $8trillion.

In 1997 the CIA World Factbook gave the UK GDP as $1.2trillion and the total external debt as $0.0 trillion (yes, that's right - almost nothing).

Now we can see that $2trillion of that debt is from household debt, so the rest could easily be built up from government, corporate and other debt. Has the economy really grown at all? Or has it contracted with "growth" being entirely due to vast injections of capital from outside?

Old BE said...

Well living standards have collapsed in the UK with young people being forced to find ever more money to get their foot on the inflation ladder, but this has been masked by the collapse in the price of imported goods such as clothes and electronics.

Old BE said...

As a personal example, I now have much less discretionary spending power than I did four years ago despite a huge percentage increase in my salary.

Nick Drew said...

anon @ 2:54 - unfortunately I don't have the macro-economic grasp to form any conclusions from those data (that's CU's department !)

Ed - yes, and food prices are just starting to rise steeply.

Further, it isn't just young people who are feeling the draught: the 'golden generation' of retirees on Final Salary pension schemes (many of whom are rolling in discretionary £) will pass on without replacement: their successors will be notably worse off - and that's even without a stock-market collapse to come ...

BTW, Ed, congrats on your Blog's ranking !!

Old BE said...


I am non-party political now though


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