Private Finance Projects and off-balance sheet debt - Economic Affairs Committee Contents


Private Finance Projects and off-balance sheet debt

Private Finance arrangements, whereby private firms contract with the Government to build and maintain infrastructure and other capital projects, are a controversial but significant means of funding public sector infrastructure projects. Most such arrangements are known as Private Finance Initiative (PFI) projects.

The Economic Affairs Committee has decided to conduct an inquiry on 'Private Finance Projects and off-balance sheet debt'. Evidence is invited by 25 September. The Committee will welcome written submissions on any or all of the issues set out below.

The inquiry will seek to answer questions such as:

How should the cost and benefits of Private Finance projects be assessed? What discount rate should be used in comparing Private Finance with conventional public procurement? Are current procurement procedures satisfactory? Is enough information disclosed on Private Finance projects fully to assess whether the taxpayer is getting value-for-money?

How does the performance (e.g., cost, delivery dates and service quality) of schools, hospitals, prisons, roads and other projects operated under private finance compare to those which were traditionally procured?

Is there significant risk transfer to the private sector or is it more apparent than real?

How effective and costly has it been to monitor the private sector providers' performance and quality of service in Private Finance projects in comparison with traditional procurement?

When the basis of a Private Finance contract needs to be altered post procurement because of changing client needs—for example, a bigger jail is required due to a larger than expected prison population—has this proved problematic compared to projects under traditional procurement? What has been the experience of PFI projects that have reverted to the public sector?

How should future payments by the Government under existing Private Finance contracts be recorded in public sector accounts? Is risk transfer an appropriate test? Should all such liabilities be included in the national debt? Should they be accounted for separately from government debt? How much does the public sector accounting treatment of capital and revenue aspects of projects matter?

Would public sector investment in the last decade have been lower without Private Finance? If so, by how much?

How much impact has the financial crisis had on launching new Private Finance projects? Is the crisis likely to have a permanent effect on the Private Finance market?

Are there realistic alternative roles for private finance than the current PFI-type private finance models? Should the UK be aiming for more diversity in private finance models? Would a national infrastructure bank (such as the proposed Dodd-Hagel NIB in the US) add any value in the UK? Should the public sector have a more hands-on role in financing and/or delivery?

Is there an optimal mix between conventional public procurement and Private Finance for public sector investment? What is the long run role of private finance in the delivery of infrastructure both in the UK and globally?

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