The Government may be able to plan investment programmes under future budgets without much concern about breaching EU borrowing rules.
That is if proposed new rules on the treatment of public-private partnerships (PPP) are approved.
The proposed rules would be likely to allow much of the roads programme to remain off balance sheet, as well as other transport projects such as the Metro and some joint ventures in areas such as school building.
Under EU rules, borrowing as measured by the general government deficit (GGD) must remain in balance during the economic cycle and must not exceed 3 per cent of GDP. The future application of these rules is now in doubt after EU finance ministers let France and Germany escape punishment, despite deficits exceeding 3 per cent of GDP for three years in a row.
Whatever reforms are made to the pact, however, the way the GGD is calculated is likely to remain crucial. And if EU governments approve the plan put forward by a taskforce of statistical experts, then the Government will have much more flexibility in this area than expected.
Under the rules as currently applied, the vast bulk of state spending on investment projects is counted as part of the GGD. This is because to move the borrowing off the state balance sheet requires the private sector partner to assume the bulk of the risk.
The new proposals - to be finalised by March - clarify that any project where the private sector contractor raises revenue direct from the user of the asset - for example toll roads - is taken as belonging to the contractor. So state borrowing, which contributes to such projects would not count towards the GGD.
However. the most significant change comes for non-tolled projects. Previously it appeared almost impossible to get these off the state balance sheet, barring a transfer of almost all the project risk to the private sector.
But the proposals from the taskforce suggest a loosening of these rules. They suggest that for assets to be moved off the state balance sheet, the private sector contractor must first assumes the risk at construction stage. Then the contractor must accept either the risk of all or part of the asset not becoming available on time or the risk of insufficient demand emerging to actually use it.
While the interpretation of this area is highly technical, it appears that it could allow many projects here to move off balance sheet and not count towards the GGD. The Government would still have to borrow and repay the money, but the constraint imposed by EU rules would be lessened.
Sources say that under the revised rules it appears that the Metro project - if advanced as currently suggested with a private sector contractor and state repayment over a long period - could remain off balance sheet.
