Private Finance Initiative - Treasury Contents

Written evidence submitted by Globalise Resistance


Globalise Resistance brings together groups and individuals opposed to the global growth of corporate power.


The many problems of Public Private Partnerships and Private Finance Initiatives have been documented by government, academics and activists alike.

Reports from the House of Lords Economic Affairs Committee and the National Audit Office and the comprehensive research of Allyson Pollock and Dexter Whitfield are testimony to this. Globalise Resistance will not repeat these facts here but instead call for three things.

Firstly, an alternative method of public procurement needs to be established. Below we point to some alternative models in use in other countries and invite the Treasury Committee to examine them in detail.

Secondly, we believe the public debt incurred under PPP/PFI should be independently audited. Forensic analysis of the accounting practices, tendering of contracts and public consultation of the project should be conducted and, if specific consortia or companies are found to have worked outside of the we believe that the public's debt to these companies should be chalked off as odious debt.

Thirdly, if PFI is to continue there are some areas that are clearly in need of reform. Again, we highlight these and invite the committee to scrutinise them further.


1.  Following its investigation into PFI housing and hospital projects, The NAO recently remarked: "There were instances where PFI may have been used where there was no evidence that it was the best procurement route. Local authorities and health trusts used PFI because there was no realistic alternative, not because it represented best value for money."[84]

2.  It is our view that the government should now investigate alternative methods of public procurement. One possible solution would be the creation of a national infrastructure investment bank. This could direct capital to areas where markets are less willing to provide it and, by pulling disparate departments together, create economies of scale and leveraging power for the government.

3.  The idea has been proposed by various parties, including Vince Cable in 2009, who recognised that the PFI model's dependence on bank finance was a problem. In a national infrastructure bank model, "There are various financing structures that can be envisaged involving different combinations of private and public equity and loan (or bond) finance and different governance structures."[85]

4.  The Institute of Civil Engineers authored a report in December 2009 calling for a national infrastructure bank. Among the benefits it would bring it cited the bank's ability to "Provid[e] capital or guarantees where private financial markets are unwilling or unable to provide all the funds required for projects which have high social, environmental and economic benefits."[86]

5.  In Europe, such a model exists. For instance, in Germany, the state-development bank KfW provides capital effectively to public infrastructure projects. According to World Bank Logistics Performance Index, Germany has an infrastructure rating of 4.34[87] (on a scale of 1-low and 5-high). The UK stands at 3.95 while Germany's rating is also higher than Norway, Sweden, France, Canada & the US. Many factors, of course, contribute to strong infrastructure but it may be that the UK could learn something from Germany.

6.  Alternatively, the Treasury could evaluate the merits and pitfalls of the SNP's Scottish Futures Trust programme, established as an alternative to PFI. In 2010, the party claimed to have delivered £114 million in public procurement savings to the taxpayer. These figures were audited by the London School of Economics and the accountants Grant Thornton.[88]

7.  Neither of these models may be suitable for Britain. However, it remains imperative to establish an alternative to PFI and we would encourage the Treasury Committee to investigate further options.


8.  If PFI continues to be used as a public procurement tool we believe, to get the best out of it, the public debt incurred under PFI must be audited and the scheme itself must be reformed.

9.  The NAO's investigation into PFI Housing and Hospitals concluded: "The Departments do not routinely collate sufficient accurate data on the costs and performance of their PFI contracts."[89]

10.  We would like to see government go a step further than collating data and instead establish a commission to audit Britain's total liabilities for privately financed public sector procurement. If the audit commission finds that players in the PFI game repeatedly broke rules or exploited the system we would request them to consider writing off the debts incurred with their involvement as odious, as defined below:

"Odious debt […] holds that debt should not be transferable to successor regimes if (a) it was incurred without the consent of the people and (b) was not for their benefit"[90] (Alexander N. Sack, 1927; Ernst Feilchenfeld, 1931)."

The terms of such an investigation would need to be defined meticulously. At present this is merely suggestion and something we ask the committee to consider.

11.  A parallel output of this investigation, in line with the NAO's comments, would be the creation of a central data store that holds information on all previous signed PFI projects. This will improve decision making in government as the information will allow departments to negotiate fair prices and systematically discern which types of PFI projects are susceptible to delays, overspends and other failures and which projects are not.


12.  Ideas for reform will come as a result of an audit but there are already some areas that are in evident need of address.

13.  Transparency: the routine publication of the vital statistics of PFI projects will ensure that public scrutiny enforces efficiency and best practice from government and consortia. Currently, some details are available under the Freedom of Information Act but other important information is exempt for reasons such as commercial sensitivity. An information package for each PFI contract should be published before it is signed that includes details of the projects.

14.  Accounting: The practice of off balance sheet accounting has been condemned by the House of Lords Economic Affairs Committee for obscuring the real cost of PPP/PFI programmes. The Treasury's solution of keeping two sets of books has also been condemned.

—  capital value and projected cost;

—  areas and amount of risk transferred to the private sector;

—  portion of project's finance underwritten by government;

—  contract between consortium and government; and

—  individual companies obligations and remunerations within the contract.

It seems self evident that in the context of a national debt crisis, the full cost of any PPP/PFI programme should be made abundantly clear. A standardised accounting practice that puts all debt on-balance sheet, regardless of risk transfer, should be mandatory. If this cannot be achieved we endorse the Economic Affairs Committee's recommendation, "that the Government should publish figures for total liabilities for privately- financed public sector procurement as a separate item alongside figures for Public Sector Net Debt."[91]

15.  The transfer of risk: currently, the percentage of risk transferred is left to departments and consortia to determine. We believe that 100% of construction risk should be transferred to the private sector on a mandatory basis. In some PFI projects, such as the failed MetroNet[92] there have also cases of government underwriting privately sourced debt. This is fundamentally counter-productive and should be outlawed.

16.  NDPBs: the role of Non Departmental Public Bodies in PFIs should be examined. Having submitted a FoI request to Defra recently, I was told that the department held no contractual information on PFI because all the contracts had been tendered by non-departmental public bodies (NDPBs). According to Treasury figures, Defra is one of the biggest PFI spenders, with £422 million due for the year 2011-12.[93] No report so far seems to have addressed the role of NDPBs and an investigation into their funding, performance and methods of working would be welcome too.

17.  Secondary markets: many PFI consortia sell their contracts in secondary markets after the initial construction phase is complete. Yet this violates one of the key principles of PFI; the idea of "whole-life costing",[94] that is, that the consortium is responsible for the construction and maintenance of the project for a length of time and therefore has the incentive to build a higher quality structure.

May 2011


Institute of Civil Engineers (2009)A National Infrastructure Investment Bank: An ICE briefing and discussion paper by

House of Lords Economic Affairs Committee (2010)Private Finance Projects and off- balance sheet debt.

House of Commons Committee of Public Accounts (2011) PFI in Housing and Hospitals.

Treasury Spending Data (2011) UK Private Finance Initiative Projects: Summary Data.

World Bank Logistics Performance Index: Infrastructure by country

Vince Cable speech to Civilisation Congress (2009)

Edinburgh Southern SNP : "PPP/PFI Rip off for Edinburgh"

84   House of Commons Committee of Public Accounts (2011) PFI in Housing and Hospitals-page 3. Back

85   Vince Cable speech to Civilisation Congress (2009) 

86   Institute of Civil Engineers (2009) A National Infrastructure Investment Bank: An ICE briefing and discussion paper page 4. Back

87   World Bank Logistics Performance Index: Infrastructure by country 

88   Edinburgh Southern SNP : "PPP/PFI Rip off for Edinburgh" 

89   House of Commons Committee of Public Accounts (2011) PFI in Housing and Hospitals-page 5. Back

90   Seema Jayachandran and Michael Kremer (2006) "Odious Debt" in American Economic Review-pages 82-92. Back

91   House of Lords Economic Affairs Committee (2010)Private Finance Projects and off- balance sheet debt-page 34. Back

92   House of Lords Economic Affairs Committee (2010)Private Finance Projects and off- balance sheet debt-pages 22-24. Back

93   Treasury Spending Data (2011) UK Private Finance Initiative Projects: Summary Data. Back

94   House of Lords Economic Affairs Committee (2010) Private Finance Projects and off-balance sheet debt-page 25. Back

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Prepared 10 August 2011