PFI has been used as a finance vehicle to fund public infrastructure off balance sheet for reporting public debt. The initial gain has been to the Treasury as the expenditure has been kept off the books. However the ongoing costs to the institutions at the front line have been high and the contracts inflexible, and the subject of much public debate. Yet the Treasury has no plans to assess the value for money of PFI and there is little evidence of a strategy for working with local public sector bodies to co-ordinate sharing of best practice about managing existing PFI deals. The PAC raised concerns in 2011 and it is disappointing that so little progress has been made.
Liverpool City Council is paying £4 million a year for an empty school which underlines the worst extent of the inflexibility of PFI. This flawed deal will see almost £55.5million of taxpayer funds wasted since the school became empty in 2014.
Offshore funds have bought up about half of the equity in PFI and PF2 projects so that the projects’ owners are increasingly remote from the public service being delivered. In addition, offshore owners of these projects pay little tax, thereby reducing one of the benefits used to justify the contracts in the first place.
Add to this the additional costs (and profits) generated by variations to the contract and the deal is not working for the taxpayer.
The Government’s reform of PFI was ultimately fairly limited, with the new PF2 only allowing greater transparency on a method that didn’t change fundamentally.
We note that there are only a handful of PF2 projects in the pipeline which suggests that the Government has lost faith in its own usage of PFI. If this is the case the Government should provide a clear explanation of its position. The Infrastructure and Projects Authority has identified a need for the UK to spend £300 billion on infrastructure by 2020/21, yet PF2 is only being proposed for two projects which require total public and private investment of up to £7.8 billion.
The Treasury needs to be much clearer about its position on PFI—it maintains that the UK’s level of debt and accounting treatment of PFI and PF2 do not form any part of the decision about whether to use PFI, but it is changing the design of PF2 to prevent capital costs of future projects from counting towards UK national debt statistics.
Published: 20 June 2018