Taxation, PFI and PFI Tax Avoidance:
A Double Irony?
Matthias Beck
Response for Seminar 2
IS CORPORATE TAXATION A CSR ISSUE
ESRC Research Seminar Series
‘WHEN WORLDS COLLIDE’: CONTESTED PARADIGMS OF COPORATE
SOCIAL RESPONSIBILITY
University of York
25 March 200918th of February 2009
The York Management School
PFI
There are now PFI projects with a
total capital value of £57bn -
equivalent to 11% of total public
debt of £536bn - and 10% of annual
government spending. About another
£5bn of projects are to be signed this
year.
http://www.guardian.co.uk/politics/2008/mar/04/economy.tax
The York Management School
PPP/PFI: Political Economy
EXPLANATIONS OF PFI
-DTI argues efficiency/learning but:
-From a Macro perspective, the emergence of PFI can
be seen as evolving from 3 developments:
a) a decline of the tax base which, triggered by neo-
liberal reforms, forces states to seek global surplus
capital to underwrite capital spending (pull factor)
[Cohn, 2004]
c) a demand, by global capital, for relatively low risk
investment opportunities (push factor) [Asenova
Beck, 2008]
d) a „vicious cycle‟ where costly PFI further erodes
that state‟s fiscal space, creating a further need for
private sector capital (feedback)
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PPP/PFI: Political Economy
neoliberal policy trajectories
eroding tax base
need for investmt opps
adoption of PFI
costly procurement
of infrastructure
subsidies
funding gap
excessive private
financial market instability sector risk taking
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Debt and Off/On Balance PFI in the UK
Hidden UK PFI Debt has been recognised for
several years:
- Independent (2003) Chair of Treasury Select Committee
John McFall says Government should add £73bn of debts
relating to PFI
- Telegraph (2007) Financial Reporting Advisory Board
(FRAB) advises that ca £20bn PFI debt should be added to
national accounts, which may cause debts to rise above
40% of GDP / IFRS (FRS5)rules?
- Balance sheet treatment of PFIs follows HMT Technical Note
1 (Revised) and the HMT VfM guidance.
Off balance sheet classification is a pre-condition for PFI credits,
whereby its applicability is based on a demonstration of appropriate
risk transfer to the private sector and VfM.
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Neoliberalism and PFI Debt
A 2005 World Bank report (Brixi, Budina, Irwin)
criticises new EU countries for hiding debt
through PPP
In the EU PPPs can help governments undertake
investments without breaching the Maastricht
criteria …Yet PPPs pose a fiscal danger as they do
create fiscal obligations. The danger of PPP is that
governments‟ desire to avoid reporting
immediate liabilities may blind them to the future
fiscal costs and risks, which increases fiscal
vulnerability
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Debt and Off/On Balance PFI in the UK
PFI in UK government Depts (1987-2005)
No £Mill
Transport 58 27222
Health 236 7839
Defence 56 4647
Educ & Skills 129 3418
Scott Exec 87 3177
Office Deputy PM 55 1507
Home Office 51 1354
Environment 16 737
Welsh Assembly 20 566
Work & Pensions 7 522
N Irl Assembly 27 417
Trade & Industry 9 393
Customs & Revenue 4 353
Cabinet Office 2 342
Constit Affairs 12 302
HM Treasury 2 128
Others 9 143 (source publicprivatefinance)
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Debt and Off/On Balance PFI in the UK
Aggregate figures on modern PFI (1990-2008)
own calculations with data from HM treasury homepage
Total Off Balance On Balance
Number 610 540 70
Value (£mill) 57,948 34,484 23,509
Avg Value (£mill) 95 63 340
Largest Project 6,687 1,079 6,687
The majority (88%) of UK PFI projects is off balance, which
amounts to 58% of total value—or a „hidden debt‟ of
£35bn. The average value of on balance projects is larger
to due to the fact that this includes very large transport
projects (London UG) are on balance
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Debt and Off/On Balance PFI in the UK
Year V/total V/off V/on V/on No/total No/on N/on/excl
excl trnsp
1990 5.0 5.0 1
1991 6.0 6.0 2
1992 30.7 30.7 3
1993
1994 6 6 1
1995 84.5 16.5 68.0 68.0 3 1 1
1996 1133.9 247.0 886.0 83.0 22 11 2
1997 1878.3 1825.2 53.1 53.1 28 2 2
1998 2456.1 2088.7 367.4 367.4 51 10 10
1999 2229.1 2052.5 176.3 176.3 55 4 4
2000 3285.1 2305.4 979.7 979.7 64 5 5
2001 2295.4 2106.4 189.0 104.0 52 4 3
2002 7877.8 2129.0 5748.8 486.0 54 8 7
2003 16190.3 3790.3 12400.0 0 52 2 0
2004 3850.5 3728.8 166.2 156.2 60 3 2
2005 3412.8 3080.0 332.8 122.9 41 3 1
2006 6874.5 5147.1 1727.4 183.3 54 8 5
2007 5448.3 5096.7 351.7 251.7 56 2 1
Preliminary analysis/some figures are estimates
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Debt and Off/On Balance PFI in the UK
Looking at off balance PFI only, the
government has become greedier,
while at the same time adopting a
more risk-taking approach to the
accounting treatment of PFI projects
(see estimated values of non-
transport on-balance PFI)
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Treasury Assumptions about PFI debt
and VFM safeguards
HM Treasury assumes
a) that only 10-15% of “total investment in
public services” comes via PFI
(discretionary spending?)
b) that existing qualitative and quantitative
VFM tests, standardised contract terms,
the provision of scrutiny and approval
together with policy guidance (Partnership
UK is 45% HMT owned) ensure that PFI is
fiscally sound and good value for the
public sector
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PFI Refinancing and Private Sector
Returns
Nonetheless, the profitability of PFI projects is one of
the key areas of debate
- negative publicity associated with UK PFI
refinancing
- allegations of excessive profiteering
- failure of the private sector to share
• PFI contracts are often concealed
• Usually justified by ‘commercial confidentiality’,
• The debate about profitability remains even further
from resolution
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Returns/Methodology
• Data source: ‘Update on PFI Debt Refinancing and the PFI
Equity Market’ National Audit Office, April, 2006) includes 46
PFI projects completed in England
• To measure profitability, returns calculated as follows:
– Total refinancing gain and capital contribution split
according to share of each contractor with reference to each
contract
– Individual gains and capital contributions aggregated by
contractor and sector
– Average returns by contractor and by sector obtained by
dividing the sum of returns by the sum of capital
contributions for each category
– Public sector share also computed using this method
• To measure accountability, disclosure ratings were computed
for each contract by scoring 1 point (up to a maximum of 10) for
each point of information provided in response to the initial
NAO request. Contract scores were summed and averaged by
contractor and by sector Steven Toms
contract disclosure cap IRR debt/asset equity Public Barclays Taylor WS Newcastle Balfour Japan West RCO Innisfree Bank of John CAE Charter-
Project sector refin date duration contract IRR after borrowing Gain £m sector Jarvis serco wakenhut Group 4 Carillon McAlpine Amey Securicor Costain Skanska Seifert ICL McQuarie Laing Kajima wind Bovis HBOS Vinci MEPC UME 3i Kier Electroni VEGA Bechtel Amey
date score value date ratio ratio share capital woodrow Atkins Estate Beatty England capital Holdings PFI Ireland Molem cs house
Colfox sch Education 1998 19/05/1999 1.00 5.00 13 0.1035 11.9 0.9153846 0.0846154 1.9 0.399 1.501
Fazakerly prison NOMS 1998 01/10/1999 1.00 1.00 88 93.5 1.0625 10.75 0.99975 4.875125 4.875125
Ashfield (Pucklechurch) Prison NOMS 1998 17-Dec-99 1.00 1.00 31 0.1631 0.1647 38 1.2258065 1.54 0 0.77 0.77
Dovegate (Marchington) Prison NOMS 1998 17-Dec-99 1.00 1.00 48 0.1411 0.1543 18 0.375 0.625 3.2 0 1.6 1.6
Hassockfield (Meadomsley) NOMS 1998 17-Dec-99 1.00 7.00 12 0.1515 0.1462 0.5 0 0.25 0.25
Lowdham Grange Prison NOMS 1998 17-Dec-99 1.00 1.00 32 0.1493 0.1614 33 1.03125 1.6 0 0.8 0.8
Kilmarnock Prison Scotland 1998 01/01/2000 2.00 n/a 32 1.6 0 0.4 0.4
Hillingdon - Barnhill School Education 1999 01-Jan-00 1.00 10.00 27 0.94 0 0.47 0.47
Sussex Weald and Downs NHST - Health 2000 01/02/2001 1.00 10.00 27 0 0
A19 Dishforth to Tyne Tunnel Transport 1996 Mar/Apr 01 5 10.00 29 5 1.65 0.22311 0.22311 0.22311
Parc (Bridgend) Prison NOMS 1998 15-May-01 3.00 0.00 79 0.0958 0.0958 79 1 0.29 0 0.038667 0.009667 0.019333 0.019333 0.009667
Balfron School Scotland 2000 01-Jun-01 1.00 n/a 17 0.6 0.3 0.3
20 0.63
Mearns Primary and St Ninian’s High School Scotland 2000 01-Jun-01 1.00 n/a 20 0.63 0.315 0.315
Dundee Ninewells Psychiatric Services Scotland 2001 06-Jun-01 1.00 n/a 10 0.31 0.31
Newcastle Estate Development HMRC 1997 26-Jun-01 4.00 0.00 218 0.1005 0.1577 145.9 0.6692661 0.3307339 21.7 13.02 2.17
HM Customs & Excise - IT Infrastructure HMRC 1999 01-Jul-01 2.00 5.00 156 0.145 0.15 60 0.3846154 0.6153846 1 0 0.5
Transport
M1 - A1 Link Road (Lofthouse to Bramham) 210 10.70 1998 01-Oct-01 3.00 10.00 210 0.17 0.33 10.7 0 1.783332 1.783332
M40 Denham to Warwick Transport 1997 Oct-01 4.00 10.00 65 8.5 2.465 0.754375 0.754375
North Wiltshire DC - Property RationalisationComm&LG 2001 Nov-01 1.00 9.00 10 0.13 0.8 0.35 0.0175 0.3325
Brooklands Avenue, Cambridge DEFRA 2001 24-Feb-02 1.00 3.00 24 13.5 0.5625 0.4375 0.8 0.4 0.133332 0.133332 0.133332
Calderdale Hospital Health 2001 01-May-02 1.00 8.00 66 0.0718 0.0762 12 3.6 2.799997 2.799997 2.799997
Joint Services Command and Staff College MOD 2001 Jun-02 1.00 6.00 88 0.18 0.52 103.3 1.34 0.4556 0.4422 0.4422
sub total 1302 85.25
A30/A35 Exeter to Bere Regis DBFO Transport 1996 Nov-02 6.00 10.00 76 0.160 0.230 3.75 0.554375 0.42375
A50/A564 Stoke-Derby Link DBFO Transport 1996 Nov-02 6.00 10.00 21 0.130 0.270 1.05 0.155225 0.11865
Bute Avenue Wales 1999 Feb-03 3.00 n/a 45 8 2.4 0.4 0.4
Debden Education 2000 Mar-03 2.00 4.00 15 0.155 0.713 17.5 1.1666667 1.34 0.402 0.2345 0.2345
Dartford and Gravesham Hospital NHS Trust Health 2000 Mar-03 3.00 6.00 122 0.210 0.56 33.4 11.69 2.351914 2.351914 5.4275 2.171
Cardinal Heenan (VA) School Education 2001 May-03 2.00 10.00 8 0.98 0.294 0.343
Central Scotland Family Quarters - MOD 2001 Jun-03 2.00 10.00 30 6.03 1.809 0.63315 0.63315
Bridlington Schools Education 2003 Sep-03 1.00 10.00 26 1 0.3 0.35 0.35
Haringey Schools Education 2003 Sep-03 1.00 10.00 63 3 0.9 1.05 1.05
Brent Jews Free School Education 2002 Sep-03 1.00 10.00 9 0.8 0.24 0.28 0.28
Heart of the City Offices Comm&LG 2001 Oct-03 2.00 4.00 18 0.1491 0.192 18.3 1.0166667 0 0
Norwich & Norfolk University Hospital Health 2001 Nov-03 2.00 4.00 229 0.189 0.604 115.5 34.65 5.053125 2.02125 8.085 10.10625 10.10625
Bromley new hospital Health 2002 Apr-04 2.00 1.00 150 0.2175 0.7054 98.9 0.6593333 0.3406667 45.3 14.043 6.681184 12.28791 6.681184
A69 Carlisle to Newcastle Transport 1996 May-04 6.00 10.00 9 0
LB Tower Hamlets Group Schools Education 2002 Mar-05 3.00 10.00 89
Hairmyres Hospital Scotland 1998 Aug-04 6.00 n/a 92 19.58 2.74 1.403333 1.403333
Medium Support Helicopter MOD 1999 Dec-04 5.00 2.00 100 0.149 0.1466 64.08 0.6408 0.3592 4.81 1.35 0.173 0.173 0.173 0.173
Sheffield Schools Education 2003 Dec-04 1.00 0.00 47 0.1144 0.1099 0.3 0.3 0
Laganside Courts Ireland 2001 Jul-05 4.00 n/a 28 2.41 0.723 0.140569
Nottingham Express Transit (Note 5) Note 5 Transport 2003 Jul-05 2.00 10.00 172
1349 247.25
Second Severn Crossing Transport 1990 Dec-02 12.00 10.00 331
East lothian Schools Scotland 2002 Mar-04 2.00 n/a 45
Tube lines Transport 2002 Dec-04 2.00 0.00 5484 0.199 0.2148 1803 0.3287746 0.6712254 68.55 41.8155 0 0
Tyne and Wear Fire 2003 Jan-06 0.00 30 25.7 0.8566667 0.1433333
5890
No of projects 10 7 9 6 1 3 1 1 2 1 3 1 1 1 1 1 3 1 3 1 1 1 1 1 1 1 1 5 1 1 1 1 1 1 1 1 1 1 79
total gain 401.05 137.5884 4.846569 16.00072 6.92645 4.29 4.875125 7.981414 0.22311 0.22311 12.51102 0.038667 0.719267 0.019333 0.019333 0.009667 2.17 0.5 2.325732 1.783332 9.281575 0.133332 0.133332 0.133332 2.799997 2.799997 2.799997 0.4 0.4 23.61827 2.171 0.63315 0.63315 10.10625 1.403333 0.173 0.173 0.173 0 0 123.4286
return on equity 14.88% 30.96% 2.0801377 0.7930154 0.016109 0.367634 0.430793 0.191233 0.197696 1.107983 0.687164 0.230827 0.230827 1.496252 0.012236 0.183796 0.012236 0.012236 0.012236 0.0754101 0.005212 0.110702 0.169841 0.758919 0.038099 0.038099 0.038099 1.272739 1.272739 1.272739 0.177778 0.177778 0.629359 1.779508 0.7035 0.7035 1.765284 0.305072 0.019276 0.019276 0.019276 0 0 0.043112
8541 w
ex tube lines 332.5 0.031329 1.0998 0.75 1.55 1.55 4.4 4.4 0.96657 0.96657 0.96657 3.16 0.79 1.58 1.58 0.79 28.776 95.94 10.5 10.5 3.25 3.49965 3.49965 3.49965 2.199978 2.199978 2.199978 2.25 2.25 3.05 1.22 0.9 0.9 5.725 8.975 8.975 8.975 1224.759 1224.759
0.288039 95.77285 1.7 3.965 15 15 3.25 7.395 2.4472 5.1528 4.4 5.725
0.34307 2 1.3 0.6 0.6 3.965 0.6762 5.3562 4.58 21.8025
1 3.15 1.6 1.6 4.6 4.6
0.75 0.45 1.6 1.6 2.35
0.8 5.725 1.35 1.35
1.3 21.8025 4.4
3.15 1.145
0.45 8.975
0.933332
13.18313 37.1425 36.22 21.7 4.4 11.615 0.96657 0.96657 8.36157 3.16 3.9134 1.58 1.58 0.79 28.776 95.94 21.009 10.5 12.23 3.49965 3.49965 3.49965 2.199978 2.199978 2.199978 2.25 2.25 37.5275 1.22 0.9 0.9 5.725 4.6 8.975 8.975 8.975 1224.759 1224.759 2862.948
5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 1.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 1.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 1.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
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0.00 0.00 7.00 7.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 1.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 n/a n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 10.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 10.00 10.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
9.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.00 3.00 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 8.00 8.00 8.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 6.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
4.00 4.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.00 6.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 4.00 4.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 n/a 0.00 0.00 0.00 0.00 n/a 0.00 0.00 0.00 0.00 0.00
0.00 0.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.00 2.00 2.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
n/a 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
58.00 45.00 32.00 20.00 1.00 17.00 10.00 10.00 11.00 0.00 20.00 0.00 0.00 0.00 0.00 5.00 30.00 10.00 20.00 3.00 3.00 3.00 8.00 8.00 8.00 n/a n/a 11.00 6.00 10.00 10.00 4.00 n/a 2.00 2.00 2.00 0.00 0.00 369.00
5.80 6.43 3.56 3.33 1.00 5.67 10.00 10.00 5.50 0.00 6.67 0.00 0.00 0.00 0.00 5.00 10.00 10.00 6.67 3.00 3.00 3.00 8.00 8.00 8.00 n/a n/a 2.20 6.00 10.00 10.00 4.00 n/a 2.00 2.00 2.00 0.00 0.00 4.59
Table X.1: Rates of Return on PFI Refinancing Transactions
And Disclosure Ratings by Contractor/Investor
Contractor/Investor No. of Transactions Average Return Principal Areas of Activity Disclosure Score
Taylor Woodrow 2 149.63% Road, Hospital 5.50
Laing 3 75.89% Road, Hospital, MOD 3.33
Carillon 3 68.72% Road, Hospital, Prison 4.33
Innisfree PFI 5 62.94% Hospitals, Schools 7.80
Barclays Capital 7 43.08% Hospitals, Schools 3.57
Jarvis1 10 36.75% Schools, Local authority, Rail 5.27
Wakenhut 6 19.77% Prisons, School 6.67
Serco 9 19.12% Prisons, School, MOD, Hospitals 3.56
WS Atkins 3 18.38% Roads, Prison 3.33
Balfour Beatty 3 11.07% Roads 0.00
28 others 28 41.00% 4.20
Total 792 43.51% 4.58
Notes:
1. Excludes Tube Lines Ltd, an atypical investment with a shared gain of £4.45m on an investment of £1.2bn. If added to the other 10 investments,
Jarvis falls to 0.7%.
2. The discrepancy between the number of transactions (79) and the number of PFI projects from which they originated (46) is due to the fact that
multiple refinancing transaction can result especially from bundled PFI projects.
Source: Calculated from appendix 9 (National Audit Office, 2006). Steven Toms
The York Management School
Table X.2i: Rates of Return on PFI Refinancing Transactions
and Disclosure Ratings by Sector
Sector Average Return Disclosure Score
Health 25.24% 4.22
MOD 8.81% 4.00
Devolved (Scotland, Wales, N. Ireland) 7.81% n/a1
Education 6.38% 2.33
Home Office 5.56% 8.17
Transport 5.18% 0.00
Other (DEFRA, HMRC) 4.64% 7.33
Community & Local Government 1.17% 5.67
Overall 8.04% 6.00
Public Sector share of gains 0.48%
Notes: 1. Devolved authorities were not required to respond to the C&AG survey.
Source: Calculated from appendix 9 (National Audit Office, 2006). Steven Toms
The York Management School
Table X.2.ii: Internal Rates of Return Before and After
Refinancing
Project IRR
Sector Before refinancing After Refinancing Ratio
Health 17.21% 48.64% 2.83
Education 12.43% 41.15% 3.31
MOD 16.45% 33.33% 2.03
Transport 16.48% 26.12% 1.59
Community & Local Government 13.96% 16.10%1 1.15
Other (DEFRA, HMRC) 12.28% 15.39% 1.25
Home Office 14.02% 14.45% 1.03
Overall 14.88% 30.96% 2.08
Notes: 1. In line with Figure 2, note1, evidence 49 (National Audit Office, 2006), North Wiltshire is assumed to have a post
refinancing IRR of 13%.
Source: Calculated from appendix 9 (National Audit Office, 2006). Steven Toms
The York Management School
Affordability Gap
“… under conditions where the Highways
agency spends £300m a year on its 14
DBFO Schemes, a sum equal to 20% of it
its budget, for just 8% of its network
(Taylor 2005), then this represents a
significant additional cost for the public
authorities …”
Jean Shaoul et al
Financial Black Holes: Accounting
for Privately Financed Roads in
the UK
The York Management School
PFI Tax Avoidance
• City investors in private finance initiative
schemes have found a more sophisticated way of
avoiding tax, after the highly controversial
transfer of the Inland Revenue's estate to
Bermuda five years ago. This led to the Treasury
banning departments from signing deals with
companies using offshore tax havens.
• By moving the vehicles established by British-
based companies - which were set up to run a
30- to 40-year PFI - into an offshore fund, they
claim they can get a more tax-efficient return for
investors, such as pension funds and banks.
Effectively, companies avoid tax on most capital
gains from refinancing the contract or on extra
cash squeezed out of the government to pay for
additional services.
http://www.guardian.co.uk/politics/2008/mar/04/economy.tax
The York Management School
PFI Tax Avoidance
• The most dramatic example is the Home Office
headquarters in Marsham Street, Westminster.
This began as a £311m PFI deal approved by
John Gieve, the former permanent secretary who
is now a deputy governor of the Bank of England,
in 2005, with HSBC. The bank set up a UK
company, Anne's Gate Property plc, with a 175-
year lease on the building. In 2006, when the
building was ready to be occupied, 80% of the
company's ownership was transferred offshore to
the Guernsey-based HSBC Infrastructure
Company Ltd (HICL).
• The Home Office insists that it does not breach
any Treasury circular banning such deals,
because at the time the deal was signed the
company was wholly based in the UK.
The York Management School
PFI Tax Avoidance
• A spokesman for HSBC Infrastructure Company
said that its company was listed on the Stock
Exchange, so British (but not foreign)
shareholders would pay tax. The UK company
running the Home Office building would pay tax.
• However, since 80% has been transferred
offshore, it would be paying out only on 20% of
the business. Any investors in these PFI vehicles
would not pay UK tax on their income and profits.
• Other major projects that are registered in
Guernsey by HICL include 42% of the Ministry of
Defence's new £550m Colchester garrison, 90%
of the £40m Stoke Mandeville hospital in
Buckinghamshire and 85% of £75m Central
Middlesex hospital.
The York Management School