Brown warned: don't hide £100bn

GORDON Brown faces an embarrassing high-profile clash with the International Monetary Fund over £100 billion of borrowing that he has managed to keep off the Government's books.

The IMF is putting the finishing touches to a report expected to insist that such public-private funding deals should be counted as government borrowing.

Dr Anne Krueger, the IMF's acting managing director, said last week that governments had 'no business' hiding private finance projects away from their balance sheets.

She is on a collision course with Brown, the most senior and respected IMF Finance Minister, who has long insisted there is nothing improper in excluding these deals from public borrowing figures.

The IMF report, the final contents of which are being negotiated behind closed doors, is due in the next few weeks. Its likely criticism of British-style public finance projects comes on top of IMF statements that UK public spending is growing too rapidly.

Brown, who chairs the Fund's ministerial committee, is in Washington for the spring meeting of the IMF and the World Bank, along with a separate conference of the Group of Seven major industrial powers.

Liabilities run up under the Chancellor's Private Finance Initiative now stand at more than £100 billion in repayments that are due to PFI companies between now and 2029. Under the PFI, private firms build and sometimes manage public assets such as schools, hospitals, government buildings, transport and defence projects. They are then paid back a guaranteed amount by the taxpayer over the contract period.

Critics say PFI is more expensive than straightforward public spending and that its real attraction to Treasury ministers is that it means the Government can borrow without it showing in public accounts.

Krueger, an American, is described as 'steely' and 'schoolmarmy'. A former Ivy League university professor, she took up her IMF job this year. She said last week: 'When the Government takes all the financial risks, this is a public activity and it has no business being treated as something outside the public sector budget.'

Britain's PFI has been criticised for cushioning firms against any risk and guaranteeing profits with taxpayers' money.

Brown yesterday asked the IMF to report on the relative merits of the British system of running public finances, as against the more rigid rules of the eurozone countries, where budgets are supposed to be kept mostly in balance.

He hopes the report, due in the autumn, will praise his approach, giving him a stick with which to beat Tory Treasury spokesman Oliver Letwin, whom Brown will portray as being bent on balancing the budget at any cost.

With the three-year spending review looming this summer, the IMF is being dragged into an increasingly fierce domestic spending debate.

Brown told the British Chambers of Commerce last week that he planned more spending on infrastructure, science and skills, on top of large rises already announced for health and education.