THE ACCA BLOG

Accountancy Futures Academy

By Ng Boon Yew FCCA, chair of ACCA’s Accountancy Futures Academy

Back in September 2011, ACCA launched our new global forums; a series of roundtables that bring together the best and brightest thinking on the future of the accountancy profession. Most of our forums have a specific focus – audit, small businesses, or taxation, and more – but our Accountancy Futures Academy is taking a broader view than the rest.

The academy has been set up to provide a genuinely longer-term look at the accountancy profession and global business world, helping us shape what’s coming next, rather than be shaped by it. 

One of the things that’ll be dominating the thinking of the academy will be the changes taking place in the next decade or so to the way the world works. Traditional regions of power and influence are declining, while new ones are rising; but how far are things going to change in the next decade, and what will be the markets on the rise after China and its fellow BRICs? Will the BRICs (Brazil, India, Russia, and China) even live up to their billing?

The rise of the BRICs also challenges the way global governance works. If you look at today’s global governance institutions – the World Bank, the UN, the IMF, the World Trade Organisation – one of the things that’s noticeable about them is they were all (if you count the WTO’s predecessor, the General Agreement on Tariffs and Trade) founded at the beginning of the modern ‘Western’ global economy. Are these organisations and rules still going to be relevant in the 21^st century?

Systems are under strain in other ways too: the Euro is having a wobble, while the prospects of a ‘Redback’ global economy are emerging that sees the Chinese Renminbi replace the Dollar as the reserve currency of choice. You could go further: in an electronic age, does money have a future as a token of exchange? What will be valuable in the future? How will it be measured?

The business world is changing too. There’s been an explosion of new ways of doing business, with all sorts of new business models emerging; what’s going to come next? The complexity of modern business also raises questions about responsibility and how that complexity can be managed. Is this a new role for the CFO? New ways of thinking about business will be needed; what will these be?

As business changes, the accountancy profession will need to change too. How will accounting evolve if new measures of value emerge? What will the rules be? Will they be driven from a Western view, or will they be driven by ideas from emerging markets? One thing that will almost certainly change is the way that accountants are trained, thanks to ever-changing learning technologies; but how will they change?

The future is always going to raise more questions than answers; it will even raise questions that we couldn’t even begin to think of now. Think about the major events that have shaped our present: the fall of the Berlin Wall; 9/11; the rise of the internet, and many more. Did people see these coming? Did people know what effect these things would have?

It’s an ambitious project, but hopefully the Accountancy Futures Academy can spark some new thinking to making the future a little bit less murky.

Nearly there

By Ed McKeever, ACCA student and potential London 2012 competitor

So where to start in summarising the previous six months?

I can’t be too disappointed with my 2011 racing season: I won two World Cup races, a Bronze at the European Championships, Silver medal at the World Championships, crucially Olympic qualification (for GB not me personally), and then finished it off with a Gold at the Pre-Olympic test event at Dorney Lake, where the canoeing will be at the Olympic Games this year.

After the end of season I sat down with my coach Alexander Nikonorov and assessed where we could make the necessary gains. Without giving too many details away, we have come up with a plan for the next to give me every opportunity to be stood on top of the podium next August.

Firstly, I did a cross country ski training camp in December; although not directly linked with canoeing it is a great way to build a solid fitness base ready for the huge volume of work that will be done next year. Unfortunately this means I will be unable to sit any ACCA exams this year, but it wasn’t that difficult a decision to make given the potential prize on offer at the end of it.

Next, I will be going away for three intensive warm weather training camps in Port Edward, South Africa and Sevilla, Spain from January until the beginning of April (it all sounds great and exotic, but these are far from holidays as we train four times a day).

Then in April there is the domestic regatta in Nottingham where I can confirm my selection for the Olympic Games, two World Cup races in May, a European Championships in June and then, if everything else goes well, the Olympic Games. The K1 (kayak single) 200m race heats and semi-finals will be on 9 August and the final will be on the Saturday 10 August.

What creates confidence in business?

By Manos Schizas, senior policy adviser, ACCA

As trusted business partners and advisers, accountants around the world had front-row seats to the downturn of 2008-9 and to the increasingly fragile recovery since. In many ways, the combined insights of our global membership have more to say about the state of the global economy than any econblogger, and they are, as you no doubt realise, absolutely massive.

Realising that there’s a story to be told here, ACCA has surveyed our members around the world every three months since early 2009 and the poll, known as the Global Economic Conditions Survey (GECS) has now become the largest of its type in the world.

But the story that GECS was created to tell is still ongoing. In fact, with Asia slowing down and Europe in the grips of a full blown sovereign wealth crisis that has so far resisted all attempts at a resolution, the need for better and clearer insights is arguably greater today than in 2009.

For the 12^th edition of the GECS (2011 Q4), we’ve joined forces with IMA (the Institute of Management Accountants) to survey an incredible 3,775 professional accountants around the world. We won’t give away the full findings of the report here; instead as a treat to our blog readers we’ve prepared a slightly different analysis, looking in detail at what factors influence our members’ confidence in the prospects of their organisations.

So, what matters to businesses – what creates confidence? It’s not a question one can ask directly in a survey; people often don’t know the answer themselves. Accountants are of course more familiar than most with the situation on the ground, but it’s hard to say how facts translate into sentiment. At the end of the day, business confidence is as much about that nagging feeling that something is wrong, or the sense that everything will be all right, than about rigorous analysis.

What we’ve done in this case is to ask indirectly. GECS follows 38 different indicators of trading conditions and firms’ responses to them, as well as an index of business confidence. On this occasion, we’ve used one of our favourite types of inductive statistics – ordinal regression analysis – in order to tease out the individual effect of each aspect of the business environments on reported business confidence, and control for business and respondent characteristics. The statistically significant effects we found are as follows:

1. As you might have expected, revenues come first – not the abstract aggregate demand of economists but good old turnover. The effect of revenue on confidence is so much stronger than those of other factors that a comparison based on standardised magnitudes would have been impossible to chart.
2. The next most important factor is the perceived state of the global economy. It is indicative of the poor economic sentiment out there that anyone who doesn’t believe the global economy is going to deteriorate further or doesn’t feel helplessly clueless tends to be more confident about their own organisations as a result. Similarly, the confidence boost experienced by those who believe the global economy is improving is almost exactly as large as the benefit from feeling that it’s simply bottomed out and won’t stagnate. Expectations about the strength of the recovery are, to put it mildly, very low.
3. Next on our ranking is a more dynamic indicator of demand – new orders. When it comes to business confidence, only negative trends in new orders register in the minds of our members; opportunities to increase orders have almost no significant effect. The fact that new orders appear to have less of an impact on confidence than current revenue does not suggest that finance professionals are short-sighted: revenues from new orders are expected in the future and are often uncertain, so in difficult times they are often heavily discounted in business people’s minds.
4. Next comes the effect of that elusive beast, effective government policy: Respondents who felt government was responding very well to the economic environment enjoyed a substantial confidence boost. That said, it is worth remembering that only very positive assessments of government policy appear to influence business confidence. No significant effects were obtained for more cautious or qualified approval.
5. This effect is followed immediately in our ranking by the effect of perceived business opportunities: the strongest effects come from innovation and expansion into new markets. As in previous downturns, the ability to benefit from the way cash-strapped customers change their habits and preferences is also a strong contributor to business confidence, as is the ability to work with one’s supply chain, presumably in search of increased efficiency. Finally, opportunities to invest in quality standards are also a contributor to business confidence, although this effect is much weaker.
6. Domestic fiscal policy ranks beneath most types of business opportunities in terms of its impact on business confidence, and it’s only the effects of austerity that push it this far up the league table. Respondents who expected government spending to ‘fall significantly’ within the next five years suffered a statistically significant loss of confidence as a result.
7. Business sector has effects on confidence of a more or less similar magnitude to austerity. In particular, respondents in accountancy practices from the Big Four to small and medium sized practices (SMPs) appear to be more confident than those in other sectors. Bear in mind that this is after the effects of all other factors discussed here have been stripped out, so it is possible that accountants in practice are simply overconfident.
8. Next on the ranking comes the evil twin of good government ratings: the perception of government incompetence. Those who felt government was doing ‘very poorly’ suffered a significant loss of business confidence and those who felt it was doing ‘poorly’ were also less confident, although this effect was not as strong. Note that there is an asymmetry in the effects of approval and disapproval of government policies: while moderate disapproval has an effect on confidence, moderate approval does not. Governments really can’t win, can they?
9. Next in our hierarchy of confidence drivers comes the availability of capital for investment. Note that, once accounting for this, access to finance in general is not a significant influence on confidence at all.
10. Business size is not a particularly strong influence on business confidence after the effects of business challenges and opportunities have been stripped out but respondents in one sizeband in particular, those with 250 to 999 employees, do appear to be less confident, all other things being equal.
11. Finally, the effect of having financially weak customers may not be as significant as others we have discussed but it does have a significant impact on confidence, as late payments and defaults can threaten business viability.

This ranking is remarkably similar to the one we uncovered when we first tried this analysis three years ago – that’s either a testament to the timelessness of how business works, or of just how little things have changed from 2009 to this day.

Merlin who?

By Manos Schizas, senior policy adviser, ACCA

For a while now, ACCA has been involved in the preparation of BDRC’s SME Finance Monitor for the British Bankers’ Association Business Finance Taskforce. This survey is now the largest survey of SME access to finance out there, and the latest quarterly results have just been published.

Figures from the latest Monitor are shoeing that SMEs’ demand for finance – especially overdrafts – is falling and that SMEs are increasingly likely to not renew existing facilities.

Interestingly, looking at discouraged demand, the levels of SMEs wanting to borrow but not doing so has remained stable. Meanwhile, the share of SMEs that simply don’t think borrowing is a good idea in the current economic climate has rocketed to 74 per cent.

The Monitor also looked at how small businesses are run, and some of the findings could explain why some small businesses struggle to access new finance. For example, only 41 per cent of SMEs produce management accounts on a regular basis and only 31 per cent have a formal written business plan. This isn’t the kind of thing that would go down well with bank managers who appreciate having solid information about the businesses they are being asked to lend to.

On top of this, only 22 per cent of SMEs had someone in charge of their finances that had any financial training whatsoever. Even amongst medium-sized businesses (50-249 employees), about a quarter didn’t have a financially trained person in charge of their finances.

This pattern of a lack of professional advice was repeated when SMEs were asked if they sought any advice before applying for finance. Only 9 per cent of SMEs that applied for an overdraft and 19 per cent of businesses applying for a loan in the past year sought any professional advice before going to their banks.

There was some positive news on loan approval rates though, which, according to the Monitor picked up between March and September 2011 (from 57 per cent to 73 per cent). Is this a success for the Government’s Project Merlin?

Maybe, but there a couple of caveats to this. Firstly, only loan approval rates picked up, not overdraft approvals. Then there’s the fact that approval rates can be slightly misleading: applications for renewing existing facilities tend to be approved outright, while applications for first-ever facilities tend not to be (this is especially true for overdrafts where approval rates are 88 per cent for renewals and 30 per cent for new applications).

Digging even deeper, we might find that although loan approval rates are ticking up, it is likely that loans are being offered on the basis of assets being provided as security; while this is acceptable for some businesses, it might see younger or smaller businesses without an asset base struggling to access loans.

So, not necessarily the success some might claim the headline figures to be. It gets a little bit worse too: Merlin was designed to release some of the previously discouraged demand for finance, and has had plenty of media coverage; however, only 20 per cent of the SMEs included in the survey had ever heard of it.

Taxing businesses is a taxing business

By Jason Piper, technical officer, ACCA

Imagine that you have been asked to write a set of operating instructions for a pedalo user at your local boating lake, to get from one side to the other. It’ll probably be a fairly brief document, maybe a side of A4 at most, including any instructions on how to steer or avoid collisions. You could probably even fit in some helpful hints on maintenance and user safety without getting too complicated.

Now, what if someone asked you to perform the same task for the entire Cunard liner fleet? (Well, except they’ll be crossing the Atlantic rather than your local boating lake. But the principle is the same.) You’d need operating manuals for the engines, details on how to cast off from the harbourside, probably how to engage tug boats and pilots… plus of course all the ancillaries; galleys, lifeboats, cinemas… it’s going to take more than a single side of A4, even if you write really, really small.

Now, consider the difference between your window cleaner (the man with the bucket, the cloth and the mobile phone) and BP (the multinational energy company with the oil refineries, the forecourt shops and the treasury team managing their international cashflows and banking). In terms of the broad analogy, both BP and the window cleaner are businesses, out to make money, in the same way that the pedalo and the cruise liner are ways to get from A to B without wet feet. And the business operating manual for each would be about as much use to the other as in the first example.

So why when it comes to tax do we insist on telling the pedalo user (small business) to look at the volumes of guidance for the big fleet (the UK taxes acts and supporting secondary legislation in all their 10,000 page glory), with the (not very) reassuring comment that it’s not all directly relevant? Telling the window cleaner that his purchase of a new ladder will be covered under the Capital Allowances Act 2001 (Section 51A)* is about as much use as telling the pedalo user to pass ‘port to port’; it’s accurate, but it’s hardly user friendly.

We need to look seriously at the ideas for simplification and deregulation that are on the authorities’ agendas, both at domestic and EU level, and think about how they can work together to improve the model for the smallest businesses, ‘subsistence businesses’ if you like, so that they can produce as much as possible with as low an administrative burden as possible, to the benefit of both their owners and the wider economy. That may mean sacrificing the sacred cow (or great white elephant?) of a unified system of business taxation, but if the ultimate trade-off is that the vast engine of micro-business can spin more freely, even with the drag of learning the extra rules for those who do decide to grow and migrate onto the full system, then it has to be worth exploring properly.

*Update: I went back to double-check the reference on this, only to discover the online version has only been updated for the 2002 Finance Act and not since. There are however, 'outstanding changes' yet to be made. Helpful. If you know the jargon you can find extra help in the HMRC manual, although I'm not sure how many small businesses have the time or know-how to do so!

Women in the global economy

By Rosana Mirkovic, senior policy adviser, ACCA

You’re all probably familiar with the global gender development gap.

But even in economies where there is a long history of equal rights and where women are now more likely to outperform men in education, the question remains: why do women still lag behind men when it comes to business ownership and leadership?

The figures are stark: on average, women are about half as likely as men to be involved in business start-ups and they account for fewer than 8 per cent of top managers in OECD countries.

It seems obvious that progress is at very best slow if not stagnant. Here at ACCA we are happy to share a better story with the majority of our students now being female as well as 42 per cent of our membership. And not only were we the first professional body to appoint a female chief executive, but we are already onto our second one.

But the point here is not to show off about our own achievements but to show that things can be different in successful global organisations. The problem is that we still haven’t arrived at the answers of why this isn’t happening more often in other professions and industries. Of course we know that family life and childcare responsibilities have a large role to play but they don’t explain everything.

We’re soon launching a new report that looks at how women have fared since the beginning of the financial crisis in 2008.

A couple of findings are worth pointing out a bit early: while our members are most likely to be influenced by their environment and more importantly the position they hold within their organisations, there were still some interesting gender related nuances we observed. For example, female members were found to be more negative towards government policy but more likely to interact with business support initiatives, including access to finance projects.

Most interestingly of all however, is the very fact that our female membership is much less likely to respond to our Global Economic Conditions quarterly surveys; although 42 per cent of ACCA members are female, only 33 per cent of GECs respondents are women.

While it is difficult to prove this, it seems possible that women are generally less interested in making predictions and general assessments on economic matters. For instance, academic and non-academic studies show that women are less attracted to economic blogging and few among even the leading female economists blog (and here too)

So the ‘silent majority’ adage might be more accurate then we thought. And therein lies a bit of problem. Diversity leads to policy- and decision-making based on a mix of views, perspectives, and experience. Without the full engagement of a significant section of society, that pool for diverse opinions is more limited than it should be.

Adapt or Die – Can Britain Compete in a Changing World?

Our final conference event for 2011. We’re still in Manchester with the Conservatives, and this was our Tuesday fringe event: Adapt or Die – Can Britain Compete in a Changing World?

‘But Prime Minister, around here, we are in the business of managing decline.’

According to Andrew Tyrie, the Conservative chair of the Commons Treasury Select Committee, this is what new Prime Minister Margaret Thatcher was told by a senior civil servant shortly after her election win in 1979. Tyrie didn’t fill us in on the specifics of the Prime Minister’s response, but the gist didn’t sound pleasant for the aforementioned mandarin.

Tackling or avoiding Britain’s Relative Economic Decline (‘bread’ in university seminars) is a challenge that’s confronted every leading British politician since the end of the Second World War (or even long before that) and it’s the topic that confronted the panellists at Tuesday’s ACCA/Politeia Conservative conference fringe event.

Joining Tyrie on the panel were new Conservative MP Jacob Rees-Mogg, the WSJ’s Simon Nixon, and ACCA’s head of tax Chas Roy-Chowdhury.

For Rees-Mogg, economic success for Britain would require a complete re-thinking of the role of the state. Businesses create jobs, not the state, he argued.

What government can do are the little things, continued Rees-Mogg, outlining a top-10 list of small changes the Government could make to boost growth and competitiveness in the UK. This list ranged from changes to planning laws (bats, barns, and old buildings all got a mention), changes to business regulation, and ignoring EU directives (not necessarily a ‘small’ change).

But, and it’s a big but, all of these changes wouldn’t help the UK compete with China and India, according to the Somerset MP. These changes still played within the parameters set by New Labour and did not challenge a failed political consensus that had spread across Europe which, he said, had concluded the state could ‘do it all’.

Small reductions of state spending, concluded Rees-Mogg, would only help us manage decline a bit better.

These sentiments were echoed – to a degree – by other panellists.

Simon Nixon acknowledged the growth of the state over the latter half of the twentieth century. The state, said Nixon, had taken on more and more risks in the economy and it was now being put in a position where it was struggling to meet promises it had made.

Moreover, according to Nixon, the UK had pioneered ‘capitalism without capital’.

This would need redress, he said, but at the same time it was important not to ‘destroy’ the City. The City, argued Nixon, was a key national industry whose health was important to make an impact on the deficit. This was backed up by Chas Roy-Chowdhury, who criticised European proposals for a ‘Tobin tax’ on financial transactions, which he said could drive business from Europe unless it was adopted internationally.

Tyrie struck a more upbeat tone, arguing that the world was a ‘dramatically’ better place now than it had ever been before in terms of people’s welfare and financial situations. However, Tyrie also had two points to make on this.

Firstly, he said that the West was backtracking from the ideas about business and the role of the state that had brought it success, while developing nations were adopting those ideas. The ‘lessons learned’ of the 1980s had given way to complacency in British politics about state spending.

Tyrie’s second point was that government spending as a proportion of GDP would have to come down, back towards 40 per cent, deficit or no deficit.

Further policy areas needed looking at too, said Tyrie, if Britain was to adapt to the globalised world economy: labour market reform (the Conservative’s announcements in this area at conference were of ‘great value’); banking reform (normalising lending); financial regulation; competition policy (something Labour got ‘right’ then later wrong with HBOS); planning reform; climate change; and transport.

Roy-Chowdhury also urged reforms in some areas to boost competitiveness, such as the simplification of the tax system, particularly for small businesses.

What we didn’t hear though was any criticism of government policy, despite press interpretations of Tyrie’s pre-conference comments about the Government’s plan for growth.

Both Tyrie and Rees-Mogg gave their full support to the Government’s deficit reduction programme, and both went out of their way to praise the Lib Dems for ‘stepping up to the plate’ (this seemed to be a theme amongst Conservative MPs at other fringe events).

One area of disagreement though: should the Chancellor be cutting faster? For Tyrie, the answer, depending on circumstances, was a ‘no’. For Rees-Mogg though, ‘bringing government spending in line faster’ could be a ‘lifeboat’ if things took a turn for the worst on the continent…

BIS' SME audit plans

By John Davies, head of technical, ACCA

Today sees Vince Cable announcing plans to give ‘more than 100,000’ small businesses the chance to choose whether or not they audit their accounts. The department of Business, Innovation, and Skills (BIS) tell us that over half a billion pounds could be saved.

This isn’t the first time that Cable was wandered into SME-audit territory.

There are a couple of points to make regarding these latest proposals.

The current UK exemption criteria amount effectively to gold-plating of the EU’s ‘fourth directive’ - the directive only requires companies do not exceed two out of three tests (turnover, balance sheet and employee numbers) to qualify as small businesses. Currently in the UK, small companies must fulfil both the balance sheet and turnover criteria, rather than ‘any’ two of the three. On this basis, aligning UK exemption criteria to the EU criteria is not unreasonable.

Theoretically though, it will open up the possibility that companies with turnover of much higher than the turnover threshold (£6.5m) will in future be able to opt out of the audit. We have to acknowledge that fast growing companies, and the increasing number of companies which employ very few or no staff, are likely to be able to claim this statutory exemption. In respect of such companies we would expect lenders of finance to remain keen to see audited accounts from them, so this must be taken into account in projecting cost savings.

As regards the potential savings for the SME sector, the FT reports that BIS claims that the average cost of an audit for a small company is £9500. We should wait to see how they come to this figure but on the face of it, it seems like something of an exaggeration.

BIS will also allow companies which are part of a group to be exempted (currently group companies are only exempt if their group as a whole is 'small'), on condition that their parent companies guarantee their debts. The principle of audit exemption for group of companies is already established, so this would be an extension of it, albeit a significant one. But remember, any material guarantee of subsidiary company debts will represent a liability for parent companies so this cannot be presented a win-win situation for them; as for stakeholders in small companies, any guarantee is of course only as good as the solvency of the guarantor.

If subsidiary companies exempt themselves from audit, the audit of the consolidated accounts would also become altogether more difficult, since the group auditor would not be able to use the results of the audit of any of the group companies. This would materially increase the amount of work and time involved in the group audit, and its cost.

Auditing the Big Society

Week three of the UK party conference tour and this week we're in Manchester with the Conservatives...

Defining the Big Society brings to mind the former US Supreme Court Justice Potter Stewart's oft-used definition of the indescribable: 'I'll know it, when I see it'.

Ok, so we didn’t actually get any closer in our fringe to getting a definition of precisely what the Big Society is, but broadly what we’re talking about is the Government’s localism agenda and the inclusion of non-public sector organisations in public service provision.

However you define it (‘today’s buzzword’ to describe things already happening, according to Manchester councillor Sue Murphy, who pointed to a long history of a volunteer ethic and strong council-community relations in her city), one of the things that matters when it comes to the Big Society is how to evaluate the use of public or private funds in the delivery of public services.

Does a certain way of service provision deliver value for money? Could it be done more efficiently another way?

For Stephen Hammond, Parliamentary Private Secretary to Department of Communities and Local Government supremo Eric Pickles, the Government’s way is to decentralise power like never before, in that they’re actually doing it. Every government comes to power promising decentralisation, said Hammond, but the Coalition was the first to produce results.

Devolving power, the need to cut spending, and the consequent need to innovate in public service provision, argued Hammond, would lead to more shared services and greater 3^rd sector involvement.

Briefly outlining the need for a localist agenda – centralisation alienates people from their own communities – Hammond said that accountability and governance was a key part of making sure the localism agenda worked. If local councils knew they were being checked up on by their local voters, they would be far more responsive to their needs, rather than Westminster’s.

Transparency is the key here, asserted Hammond. ‘Information is power’ was never more true, and power could be transferred from government to people by placing central and local government data in the hands of ‘armchair auditors’ (said pointedly addressed in the direction of ACCA’s Gillian Fawcett. Wouldn’t have anything to do with this, would it?)

Is this enough though? Is ‘information is power’ a robust enough protection for value for money in public service provision? Not everyone in the room was so sure.

Fawcett pointed out that UCL research into the use of Freedom of Information requests showed that there was a distinct lack of interest in going through government financial statements amongst the public. ‘Information does not tell you everything’, said Murphy (probably grumpy about spending stories like this one) and raw data misses out on context.

Fawcett went on. The public sector was changing the way it provided its services, she said, and the financial oversight needed to catch up. Unfortunately, it wasn’t yet clear if the fragmented system of UK public spending oversight was coherent or clear. Also missing, Fawcett continued, was any way of evaluating the impact of the Big Society and its outcomes, including who could actually carry out that oversight.

After a while, discussion turned to the Audit Commission; the manner of its demise was not entirely popular in the room, although no one disagreed openly with Hammond’s position that the Audit Commission wasn’t as effective as it should have been. ‘Rushed’ was the conclusion of more than one, while Fawcett said it was a missed opportunity to carry out a wholesale reform of public spending oversight.

This still all left questions about how to actually achieve the required oversight of new service delivery models. Murphy looked to her own experience: councils and third parties needed to agree on outcomes carefully before embarking on any project if they were to be properly to be held to account.

And Stephen Hammond? We still need proper auditing of 3^rd party public sector service provision, he said. It’s a challenge that can be met.

Hmmm. Hammond’s answer brings to mind the story of an exam hall wag. Asked by his maths exam to ‘find x’ in an equation, said wag circles ‘x’ and proudly declares ‘here it is’. Our panel was asked to find potential problems with holding the Big Society to account; ‘there’s one’, said Hammond.

Yes, but what about the rest of them? And how is government going to solve them?

Updated: 5/10 18.48

Looking again at the PFI debate

By Ewan Willars, director of policy, ACCA

The debate that perpetually dogs the Private Finance Initiative (PFI) is an interesting one.

For a simple procurement model to be the subject of such divided opinion, between those that dislike it but accept it, despite its flaws, and others that see absolutely no redeeming features whatsoever, must be unique.

It is a highly charged debate, with deep political overtones. But that rhetoric just serves to obscure the truth behind misinformation and misunderstanding.

PFI grew out of a desire to deliver public building and infrastructure projects by harnessing private sector know-how and tying private firms into long-term maintenance and servicing agreements.

The fact that the agreements were effectively off the government’s book – buying projects ‘on tick’ – it was lauded as a legitimate case of having your cake and eating it.

Predictably, the private sector was not slow to take advantage of the rich pickings and an arguably naïve public sector.

Unequal negotiations, ineffective briefs, heavy handed bureaucracy, poor project oversight and a stampede to close deals inevitably lead to the damning view of PFI as being a very expensive route to low quality returns.

People forget that PFI turned construction performance around, from 30 per cent of public infrastructure projects being on time, and 70 per cent running over costs under the public sector, to 70 per cent delivered on time and only 30 per cent running over cost under PFI.

The truth is, PFI, or what we should really be talking about – PPP (public private partnership) – has come a long way, and a number of models now exist that much more effectively harness public and private know-how in tandem, and create the potential for low cost and high quality projects.

Classic, ‘pure’ PFI for building and infrastructure projects should, in my opinion, undoubtedly be retired. It is based on a redundant Public Sector Comparator, and ineffective funding gateways and post-project audit. That model certainly has proved a gravy train for the private sector, and too often delivers poor returns for the levels of public investment.

But there are lots of great PFI/PPP ‘derivatives’ – the sons and daughters of PFI - like many European regeneration PPPs, French-style municipal services PPPs, Hong Kong and Danish land value capture and infrastructure projects, the Scottish PFI model, Northern Ireland Health Estates’ exemplar model, smart PFI.

These initiatives show value for money and innovative processes, built on repeated efficiency improvements and properly shared public/private project ownership.

It’s so much easier to simply paint PFI as the enemy. While they may not like it, neither the previous nor current governments have managed without it.

But of course during party conference season, who ever let the facts get in the way of a good old fashioned political argument?