Private Finance Initiative - Treasury Contents

Written evidence submitted by J P Heawood


I am a resident of York who was alarmed by early reports of PFI, doubly so when it came to the local primary school which our children had attended. With others I formed York PFI Watch (now defunct) to inform teachers, parents and others, by a website, leaflets, press letters and attendance at meetings, about the operation of PFI and its implications. My reading since then suggests that the fundamentals of PFI are unchanged, and I wish to make a criticism of it which I think is not sufficiently recognised.


(1)  PFI as operated is dishonest, because it forces bodies applying for PFI funding - to which there is usually no alternative—to present private finance as cheaper than public funding, whether it is or not.

(2)  In practice, as has happened in York, an initial case showing public funding as cheaper than private is tilted the other way by a figure for transferred risk.

(3)  In fact no risk is transferred unless specified in the contract, and there are reasons to think that in reality much risk remains with public bodies.

(4)  Secrecy makes PFI undemocratic; its operation is dishonest, corrupting and coercive, perpetuating in every submission the myth that "private" funding is always cheaper than public, despite contrary evidence, and thereby wasting resources.

(5)  The inquiry should make public the detailed operation of PFI, and make genuine comparisons of private and public funding; it should recommend the abolition of all public spending disguised as private, and of all funding tests requiring "evidence" that is a foregone conclusion; and it should recommend elimination by all means of excessive costs in existing PFI contracts.


PFI has many faults, but I will limit myself to a crucial criticism which is seldom aired. This concerns the dishonesty of PFI, and the expensive falsehood that maintains it. PFI was brought in to disguise certain public spending as private finance. To justify this, it was deemed necessary to present "private" funding as cheaper than undisguised public spending—most improbably, as governments borrow at preferential rates and do not have to create a profit. Councils and other authorities have been forced by this into a culture of dishonesty, for which their "reward" is decades of serious over-expenditure.


A local and typical example is the fairly recent rebuilding of three primary schools in York: Hob Moor, Westfield; St Barnabas', Beckfield; and St Oswald's, Fulford. To get new schools, the City of York Council had to apply for private finance, "the only show in town". To secure this, York's business case had to show the PFI cost as being lower than undisguised public funding—whether it was or not.

In the York Schools PFI Project, the executive summary of the Outline Business Case (OBC) gave the PFI cost as £11.1 million, with the projected Public Sector Comparator (PSC) better value at £10.3 million. But of course a bid with those figures wouldn't get public funding—it would get no funding!

So, as was customary, an "estimated risk" figure of £1.4 million was added to the PSC, which made PFI look better value; York's bid was then accepted, in March 2002, and the schools were built. This estimated risk figure, which made York's PFI bid viable, was held to represent risk that would be transferred to the "private provider", Sewell Group, if it built the schools. It was impossible to test this figure, as the OBC was not made public.


The council's claim, as conveyed to the public by York Schools Project Manager Damon Copperthwaite in a newspaper interview (Yorkshire Evening Press 24 March 2004) was that "by entering into a PFI agreement the provider takes on all the risk". This was quite untrue, for several reasons (taken from an indispensable pamphlet, Rowland & Pollock "Understanding the Private Finance Initiative", Unison, 2002):

(1)  No risks are transferred to the provider unless specified in the contract, with enforceable financial sanctions.

(2)  Nor do risks always stay transferred. Companies failing to deliver have regularly used this as a reason to renegotiate their PFI contract—upwards!

(3)  If Sewell go bankrupt or withdraw, York carries the can, since PFI contracts are technically speaking not with the PFI company but with a "Special Purpose Vehicle" for which that company is not financially responsible.

(4)  PFI creates new risks: under a PFI contract, the PFI repayments are "protected", with priority in school budgets over all other spending—even teachers' pay.

(5)  If for any reason PFI costs rise during the following 25 years, the government will not increase its contribution: any increase will fall in full on the council.

I made points (1)-(3), worded as shown, in a reply to Mr Copperthwaite which the paper printed, inviting him to correct me if my information was wrong or outdated. He did not do so. This destroyed all faith in the council's claim about £1.4 mILLION of transferred risk—which remained the only "evidence" that PFI was cheaper than public spending!


(1)  PFI is undemocratic: the break-down of York's expenditure is a commercial secret from York's taxpayers, who will pay for it over 25 years, but can't hold their councillors accountable for the costs, because they don't know in detail what the costs are.

(2)  PFI is dishonest: the alleged comparison between "private" and public funding is not obtained honestly; since the PFI "option" is the only one, the council's task is not to find out whether, but to ensure that, the PFI figure appears as better value.

(3)  PFI corrupts: there is pressure on officers to make the figures come out right, ie in favour of PFI; they may well feel their professional integrity threatened or tarnished.

(4)  PFI coerces: councillors are coerced into voting for policies they may completely disagree with; in York in 2001, 24 Liberal Democrat councillors, whose party's policy was opposed to PFI, had to vote for it for fear of losing three new schools for York.

(5)  PFI perpetuates falsehood: every PFI scheme submitted (many more are submitted than succeed) adds perforce to the accumulated mass of improbable "evidence" that PFI is cheaper than public spending.

(6)  PFI wastes resources: as the "proof" that PFI is cheaper is a charade, it is no surprise that true figures show councils loaded for decades with grossly excessive repayments, corresponding to enormous profits made by some (not all) PFI providers.


I suggest that this Inquiry should:

(1)  make public the detailed operation of PFI, so that its fundamental dishonesty, and the culture of corruption and falsehood it has created, are evident to everyone;

(2)  make unbiassed comparisons, for a representative sample of PFI projects, between the overall costs of PFI and the corresponding costs of straightforward public spending;

(3)  invite evidence regarding (1) and (2) above, first and foremost from Prof Alyson Pollock, academic, and also from Ms Polly Toynbee, journalist, both of whom have produced full and convincing evidence for the criticism of PFI presented here;

(4)  recommend the abolition, if necessary by statute, of attempts to represent public spending as private financing;

(5)  recommend the abolition, if necessary by statute, of government funding tests that require submission as "evidence" of what is in fact a foregone conclusion; and

(6)  recommend urgently the reduction of expenditure on existing PFI contracts, whether by renegotiation, taxation or legislation, so that profits from these schemes no longer impose an excessive and unreasonable burden on local or national taxpayers.

April 2011

previous page contents next page

© Parliamentary copyright 2011
Prepared 10 August 2011