Inconsistent implementation and opaque financial reporting are features of public private partnership (PPP) schemes to build schools, according to a new report from Scottish accounting body ICAS.
In the report, ‘Losing control in joint ventures: The case of Building Schools for the Future’, ICAS warns the government needs to improve the accountability and transparency of how publicly funded services are being delivered by the private sector.
The research identified “a lack of financial clarity” and insufficient government financial oversight in the PFI schemes [now re-branded as PF2 projects] which helped deliver the Building Schools for the Future (BSF) programme.
Manchester Business School, who conducted the research, found that BSF was supposed to be delivered via public-private co-operation, although in reality, control over public finances was given up to the private sector through overly complex structures.
Anne Stafford, one of the report’s authors, said: “The financial reporting of BSF is both limited and fragmented across multiple organisations and this is compounded by inconsistency in treatment and aggregation in presentation. The lack of clarity means that the overall cost of BSF is unclear. We also found little evidence of on-going scrutiny of the scheme.”
The BSF initiative has now come to an end, however ICAS said the issues are even more crucial in relation to Academies and Free Schools where the private sector controls both the revenue and capital budget.
Michelle Crickett, ICAS director of research, added: “There are lessons to be learnt for other areas of the public sector. We would urge governments to consider how the private finance policy can be implemented with more transparent organisational structures to ensure that there is accountability over public funds and services, whatever delivery model is used.”
Back in February, as part of its inquiry into private finance, the Treasury Committee took evidence from a range of investors and experts, including Richard Abadie, global head of infrastructure at PwC and David Heald, professor of accountancy at the University of Aberdeen Business School.
Abadie was asked what would happen if the Department for Education decide to reject PF2 for its ongoing schools programme on the basis of value for money, and whether this would mean the programme wouldn’t go ahead.
Abadie said that in the past projects have taken place because there has been this accounting arbitrage: “The new building schools programme is about £2 billion. It will be off the national accounts for all intents and purposes as far as I understand. If it were on the national accounts, the Department for Education would have to find a £2 billion capital budget to replace it. So there is a risk.
“I don’t think that warrants all of the projects being treated as off balance sheet or off budget. I think there should be accounting symmetry. I don’t know whether control totals get you there, but the bottom line is we do need to find a way of investing in the UK’s infrastructure, that is key,” he said.
For the full transcript of the session, visit the Parliament website.
This was followed in May with another evidence session featuring Lord Deighton and Geoffrey Spence from HM Treasury.
