taxation, pfi and pfi tax avoidance: a double irony? · the york management school taxation, pfi...

The York Management School

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 York25 March 200918th of February 2009


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



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 neoliberal 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)

<House of Cards?>


PPP/PFI: Political Economy

neoliberal policy trajectories

eroding tax baseneed for investmt opps

adoption of PFI

costly procurementof infrastructure

subsidies

funding gap

excessive private financial market instability sector risk taking


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 appropriaterisk transfer to the private sector and VfM.


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



PFI in UK government Depts (1987-2005)No £Mill

Transport 58 27222Health 236 7839Defence 56 4647Educ & Skills 129 3418Scott Exec 87 3177Office Deputy PM 55 1507Home Office 51 1354Environment 16 737Welsh Assembly 20 566Work & Pensions 7 522N Irl Assembly 27 417Trade & Industry 9 393Customs & Revenue 4 353Cabinet Office 2 342Constit Affairs 12 302HM Treasury 2 128Others 9 143 (source publicprivatefinance)



Aggregate figures on modern PFI (1990-2008)own calculations with data from HM treasury homepage

Total Off Balance On Balance

Number 610 540 70Value (£mill) 57,948 34,484 23,509Avg Value (£mill) 95 63 340Largest 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



Year V/total V/off V/on V/on No/total No/on N/on/exclexcl trnsp

1990 5.0 5.0 11991 6.0 6.0 21992 30.7 30.7 319931994 6 6 11995 84.5 16.5 68.0 68.0 3 1 11996 1133.9 247.0 886.0 83.0 22 11 21997 1878.3 1825.2 53.1 53.1 28 2 21998 2456.1 2088.7 367.4 367.4 51 10 101999 2229.1 2052.5 176.3 176.3 55 4 42000 3285.1 2305.4 979.7 979.7 64 5 52001 2295.4 2106.4 189.0 104.0 52 4 32002 7877.8 2129.0 5748.8 486.0 54 8 72003 16190.3 3790.3 12400.0 0 52 2 02004 3850.5 3728.8 166.2 156.2 60 3 22005 3412.8 3080.0 332.8 122.9 41 3 12006 6874.5 5147.1 1727.4 183.3 54 8 52007 5448.3 5096.7 351.7 251.7 56 2 1Preliminary analysis/some figures are estimates



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)


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


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


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

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Colfox sch E ducation 1998 19/ 05/1999 1.00 5. 00 13 0. 1035 11.9 0. 9153846 0.0846154 1. 9 0. 399 1. 501Fazakerly prison NOMS 1998 01/ 10/1999 1.00 1. 00 88 93.5 1.0625 10.75 0. 99975 4. 875125 4. 875125Ashfi eld (Puckl echurch) Prison NOMS 1998 17-Dec -99 1.00 1. 00 31 0. 1631 0. 1647 38 1. 2258065 1.54 0 0. 77 0. 77Dovegat e (Marchingt on) 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 1.6Hassock field (Meadomsley) NOMS 1998 17-Dec -99 1.00 7. 00 12 0. 1515 0. 1462 0. 5 0 0. 25 0. 25Lowdham Grange Prison NOMS 1998 17-Dec -99 1.00 1. 00 32 0. 1493 0. 1614 33 1. 03125 1. 6 0 0.8 0.8Kil marnock Prison S cotland 1998 01/ 01/2000 2.00 n/ a 32 1. 6 0 0.4 0.4Hil lingdon - Barnhill School E ducation 1999 01-Jan-00 1.00 10. 00 27 0.94 0 0. 47 0. 47Sussex Weald and Downs NHS T - Health 2000 01/ 02/2001 1.00 10. 00 27 0 0A19 Dishfort h to Tyne Tunnel Transport 1996 Mar/ Apr 01 5 10. 00 29 5 1.65 0. 22311 0. 22311 0. 22311Parc (Bri dgend) 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. 009667Balfron School S cotland 2000 01-Jun-01 1.00 n/ a 17 0. 6 0. 3 0. 3Mearns Primary and St Ninian’s High SchooS cotland 2000 01-Jun-01 1.00 n/ a 20 0.63 0. 315 0. 315Dundee N inewells Psychiatr ic Services S cotland 2001 06-Jun-01 1.00 n/ a 10 0.31 0.31Newcas tle Es tate 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 2.17HM Cust oms & Exc ise - I T Infras truc ture HMRC 1999 01-Jul-01 2.00 5. 00 156 0.145 0.15 60 0. 3846154 0.6153846 1 0 0. 5M1 - A1 Link Road (Loft house to Bramham) Transport 1998 01-Oct -01 3.00 10. 00 210 0. 17 0.33 10. 7 0 1.783332 1.783332M40 Denham t o Warw ick Transport 1997 Oct -01 4.00 10. 00 65 8. 5 2. 465 0. 754375 0.754375Nort h Wi ltshire DC - P ropert y Rat ional isationComm&LG 2001 Nov-01 1.00 9. 00 10 0. 13 0. 8 0.35 0.0175 0.3325Brooklands 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. 133332Calderdale Hospit al Health 2001 01-May -02 1.00 8. 00 66 0. 0718 0. 0762 12 3. 6 2. 799997 2.799997 2.799997Joint S ervices Command and St af f College MOD 2001 Jun-02 1.00 6. 00 88 0. 18 0.52 103.3 1.34 0.4556 0. 4422 0.4422sub total 1302 85.25A30/ A35 Exeter to Bere Regis DBFO Transport 1996 Nov-02 6.00 10. 00 76 0.160 0.230 3.75 0. 554375 0. 42375A50/ A564 St oke-Derby Link DBFO Transport 1996 Nov-02 6.00 10. 00 21 0.130 0.270 1.05 0. 155225 0. 11865Bute A venue Wales 1999 Feb-03 3.00 n/ a 45 8 2. 4 0. 4 0.4Debden E ducation 2000 Mar-03 2.00 4. 00 15 0.155 0.713 17.5 1. 1666667 1.34 0. 402 0.2345 0.2345Dart ford 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 2.171Cardinal Heenan (V A) School E ducation 2001 May -03 2.00 10. 00 8 0.98 0. 294 0. 343Cent ral S cotland Family Quarters - MOD 2001 Jun-03 2.00 10. 00 30 6.03 1. 809 0.63315 0.63315Bridli ngton Schools E ducation 2003 Sep-03 1.00 10. 00 26 1 0. 3 0.35 0.35Haringey Schools E ducation 2003 Sep-03 1.00 10. 00 63 3 0. 9 1.05 1.05Brent Jews Free S chool E ducation 2002 Sep-03 1.00 10. 00 9 0. 8 0.24 0.28 0.28Heart of the Cit y Offices Comm&LG 2001 Oct -03 2.00 4. 00 18 0. 1491 0.192 18.3 1. 0166667 0 0Norw ich & Norfolk Univers ity Hospit al 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 10.10625Bromley 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 6.681184A69 Carlis le to Newcas tle Transport 1996 May -04 6.00 10. 00 9 0LB Tower Hamlet s Group Schools E ducation 2002 Mar-05 3.00 10. 00 89Hairmy res Hospital S cotland 1998 Aug-04 6.00 n/ a 92 19.58 2.74 1.403333 1.403333Medium Support Helicopt er 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 E ducation 2003 Dec -04 1.00 0. 00 47 0. 1144 0. 1099 0. 3 0. 3 0Laganside Courts Ireland 2001 Jul-05 4.00 n/ a 28 2.41 0. 723 0.140569Nott ingham E xpress Trans it (Note 5) Note 5 Transport 2003 Jul-05 2.00 10. 00 172

1349 247.25

Second S evern Crossing Transport 1990 Dec -02 12.00 10. 00 331East lothian S chools S cotland 2002 Mar-04 2.00 n/ a 45Tube lines Transport 2002 Dec -04 2.00 0. 00 5484 0.199 0. 2148 1803 0. 3287746 0.6712254 68.55 41.8155 0 0Tyne and Wear Fire 2003 Jan-06 0. 00 30 25.7 0. 8566667 0.1433333

5890No of projec ts 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 79t ot al 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. 4286ret urn 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 wex 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 5.7250.34307 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. 60.75 0.45 1.6 1.6 2. 35

0. 8 5. 725 1. 35 1. 351. 3 21.8025 4.4

3.15 1.1450.45 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

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0.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 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. 000.00 0.00 0. 00 0. 00 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. 000.00 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. 009.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 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. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 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. 000.00 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. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 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. 000.00 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. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 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. 004.00 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. 000.00 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. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 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. 0010.00 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. 0010.00 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. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 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. 000.00 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. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 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. 000.00 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. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 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. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 000.00 0.00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0. 00 0.00 0. 00 0. 00 0. 00 0. 00 0.00 0.00 0.00 0.00 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. 005.80 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 ScoreTaylor 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


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


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


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 alFinancial Black Holes: Accounting for Privately Financed Roads in the UK


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.




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.


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.

taxation, pfi and pfi tax avoidance: a double irony? · the york management school taxation, pfi...

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