Brown's Burden Of Debt Could Grow By £60bn

[Guest uberstuka]

http://www.telegraph.co.uk/money/main.jhtm.../03/ixcity.html

Brown's burden of debt could grow by £60bn

By George Trefgarne, Economics Editor (Filed: 03/08/2005)

The Office for National Statistics yesterday classified over £4billion of obscure liabilities as government borrowing - the first step in a move which could see Gordon Brown forced to add £60billion to his official borrowing numbers.

The two schemes affected yesterday are a £1.25billion bond issued by London & Continental, which operates the Channel Tunnel Rail Link; and the Chancellor's International Finance Facility, which will use bonds to fund a massive immunisation programme in Africa.

Network Rail's £21bn of Government guaranteed debt remains off balance sheet

The ONS is currently examining 700 schemes backed by the government, mostly public sector finance initiatives to build schools and hospitals, and will decide whether their borrowing should be scored as government borrowing next summer, in the 2006 edition of the national accounts.

There are no plans to include Network Rail's £21billion of Government guaranteed debt, as that has already been classified as off the government's balance sheet. Another £3.75billion of London & Continental's debts guaranteed by the Department of Transport are also excluded.

A spokesman for the ONS explained that, in deciding whether various liabilities ultimately backed by the taxpayer are government borrowing or not, it applied international rules approved by Eurostat, the EU statistics watchdog. "It all depends whether the risk is transferred," said a spokesman.

"The Government has guaranteed the track access charges for the tunnel and also aid payments for the immunisation programme, so it is bearing all the risk. That is why they are classified as government borrowing."

Economists believe this could be the start of a process which reveals an underlying deterioration in the public finances. Jonathan Loynes of Capital Economics said: "Given that they are looking at 700 schemes, this could open the floodgates and alert the market to the fact there has been a big build-up in these kind of hidden liabilities on the public finances." He said the process could affect some of Mr Brown's cherished fiscal rules, but it was too early to say how.

A Treasury spokesman said: "All our plans are fully costed and affordable and we will continue to meet our fiscal rules. What matters is providing the best value for money, which is what these guarantees do." A Treasury guarantee allows an organisation to borrow much more cheaply and yesterday London & Continental's 50-year bond was yielding 4.4pc, close to the 4.3pc yield on government gilts.

The Treasury also welcomed the ONS's announcement about the International Finance Facility. Britain, Italy, France and the Netherlands have agreed to pay up to £200m each from their annual aid budgets until 2020 in order to allow the IFF to issue bonds to pay for Aids and malaria injections across Africa. These will be administered by the Global Alliance for Vaccination and Immunisation, a charity backed by Microsoft founder Bill Gates.

The plan is resisted by George Bush, who does not believe it is right to put future aid payments in hock in order to fund a one-off bumper payment now.

The Treasury said the Chancellor was delighted: "Today's decision is a major step forward. It will provide an additional £3billion of urgently needed aid preventing 5m child deaths before 2015 and a further 5m deaths after 2015."