Sir, Is “Optimism Bias” the three-card trick that allows Gordon Brown to hide debt and promise the punters massive new spending? Despite signing up to International Financial Reporting Standards, the Treasury has found a new way to keep Private Finance Initiative (PFI) spending off the balance sheet. In every other OECD country private money borrowed to fund capital projects guaranteed by government is accounted in the national debt.

Though the UK was supposed to follow this rule it now seems we will only recognise liabilities for finished projects. This keeps projects under construction and future projects off the debt forecasts, thereby preserving (short-term) creditworthiness, which is very handy if your credit status is marginal and you are promising to build even more new schools, hospitals and “universities”.

Although the cost of capital for Treasury-funded projects is now much lower than PFI, the latest Treasury guidelines force planners to add in a special cost for “Optimism Bias” if they intend to use public funding but not if they use PFI. This leg-up for PFI means that “Optimism Bias”, which is a legitimate tool, is being used to distort the funding process in favour of more expensive capital that (conveniently) does not show up on the national debt. Chase the Lady played on a grand scale. It takes a special kind of pedant to split the difference between this kind of accounting and the kind that allowed Enron or Madoff to hide liabilities on one side while showing assets or income on the other.

Although this is a bigger sleight of hand than expense abuse it is harder to follow, which shows that government and political parties have little to fear in scandal. Forget card tricks. So long as it is too complicated for the press and public to follow, you can rob a bank while telling everyone you are doing it.

Ken Charman

Wokingham, Berks

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