MPs debate tax on UK secondary infra markets

At a recent hearing assessing the impact of the Crisis on privately financed infrastructure projects in the UK, the head of the National Audit Office acknowledged ‘there might be a case’ for government and taxpayers to obtain a profit from equity sales taking place in the secondary markets.

The UK’s public accounts committee – an investigative body made up of cross-party Members of Parliament – has raised the possibility of government getting a cut from secondary equity sales in privately financed infrastructure projects.
 
The suggestion was made at a recent hearing assessing the impact of the Crisis on projects that form part of the country’s private finance initiative (PFI), the UK’s standardised procurement process of tendering public works to the private sector.
 
Upon hearing that taxpayers already get a share of the refinancing gains made in PFI transactions, MPs wanted to know why the same didn’t happen with the highly profitable trade of PFI equity stakes in the secondary markets.
 
Amyas Morse, the head of Britain’s National Audit Office, which audits the UK government’s accounts, said there was a “very active traded market” in PFI equity stakes, estimating that equity stakes have changed hands in at least 150 PFI projects, once the construction phase had ended.
 
Since these sales are undertaken mostly to generate a profit, Morse stated “there might be a case to capture some of that gain” for the government. But Charles Lloyd, former head of PFI at the Treasury, defended the benefits of a liquid secondary market that allowed contractors to recycle equity so that it could then be channelled to other projects. This liquid market, Lloyd argued, might be jeopardised if the government were to start taxing it.
 
Andrew Hudson, director of public services at the Treasury, trod the middle ground, saying that there was no intention of introducing a tax on secondary market sales, but admitting that the government is keeping an eye on the market.
 
Participants were giving evidence at a hearing that was occasionally hostile to PFI. Austin Mitchell, a Labour MP, asked Hudson, Lloyd and Andy Rose, head of financial markets at Infrastructure UK, why they hadn’t made arrangements for the government to profit from the secondaries market, which he classed as “a major racket”.
 
At an earlier point in the hearing, Mitchell told Hudson that the Treasury was “screwed by the banks” during the Crisis, allowing them to increase the cost of funding for PFI for the long-term. And Margaret Hodge, chairwoman of the public accounts committee, also a Labour MP, repeatedly asked if there was a future for PFI given that loan margins are still high even though the environment is more stable now.
 
The UK has over £217 billion (€249 billion; $344 billion) in PFI liabilities to pay between now and 2033, law firm Norton Rose estimates.