You asked
Is UK Governmental expenditure under PFI, and PF2, contracts fully included in measured Annual UK GDP?
If UK Governmental expenditure under PFI, and PF2, contracts is fully included in measured Annual UK GDP, then please describe how the measurement is calculated and included?
We said
Not all UK Government expenditure under PFI and PFI2 is included in UK Gross Domestic Product (GDP).
There is a distinction between projects that are ‘on balance sheet’ and those that are ‘off balance sheet’. Where an ‘on balance sheet’ project is one for which the majority of the project risks and rewards are considered to lie with government and an ‘off balance sheet’ project where the majority of these risks and rewards are considered to lie with the private sector partner(s).
For off balance sheet projects, all government expenditure, in the form of unitary payments, is treated as government intermediate consumption, which is included in government final consumption expenditure, which is a component of GDP.
For on balance sheet projects, the unitary payment is split into three components:
- Service charges are treated as government intermediate consumption, which is included in government final consumption expenditure, which is a component of GDP
- Finance lease repayments, which are not part of GDP
- Interest payments, which are not part of GDP
In addition to the unitary payment, for on balance sheet PFIs, the leased PFI asset is recorded as capital formation expenditure of government, either when the asset is completed or beforehand if the asset is completed in stages. This government capital formation expenditure is included in GDP.
Finally, any equity investments of government in PFI or PFI2 projects, or government lending to project partners, will not be included within GDP, as long as the investments/lending are made on commercial terms, but will instead be recorded as government purchases of financial assets.
All payments by central government departments are included within the expenditure data reported to Her Majesty’s Treasury (HMT). Similarly, payments by local authorities are reported within statistical returns to the Ministry of Housing, Communities and Local Government (MHCLG) for England, and equivalent returns to the relevant devolved administrations in Scotland, Wales, and Northern Ireland. We use these same sources and includes the relevant amounts in GDP calculations as required.