IfG: Government striking poor value for money infrastructure deals

20 Nov 17

The government is using private sector financing for infrastructure even when deals offer poor value for money, a think-tank has stated.

The Institute for Government’s Public versus private: how to pick the best infrastructure financing option report, out last week, highlighted examples of where “inappropriate finance choices” had been made.

It said these choices had left “taxpayers and consumers locked into expensive, inflexible contracts”.

Examples included private finance initiative waste contracts, regulated water companies, to megaprojects such as Hinkley Point C5 and Metronet.

The report did note there had been some successes, such as Crossrail.

Nick Davies, associate director at the IfG, said: “Successive governments have had a clear bias for private finance when it comes to infrastructure.

“This is despite limited evidence for the benefits of private finance, with examples of the public sector buying out collapsing private finance contracts, such as those used to maintain and renew London Underground’s infrastructure.”

This follows a report from the National Audit Office, which warned that the Hinkley power station project was “risky and expensive”, and the Public Accounts Committee found that the Metronet rail scheme had wasted £410m.

IfG researchers believed ministers and officials had not fairly compared public and private borrowing and failed to collect the evidence needed to make good decisions on whether to pursue public or private financing in the future.

Despite the “lack of evidence” on the effectiveness of private finance, the government still expects private investors to raise over 60% of the finance for future projects, according to the IfG.

At this year’s Labour party conference shadow chancellor John McDonnell controversially said PFI deals should be brought “in house” to save taxpayer’s money.

PF investigated whether PFI could still have a future and found there was still support for the model.

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