Shadow chancellor George Osborne has fired the first shot, declaring that the Private Finance Initiative is 'flawed and must be replaced'. The months leading up to the election will get many politicians out of the woodwork, providing their penny’s worth on this issue. With the development of the UK’s schools and hospitals and other infrastructure on the table, the stakes are high.
Yet promises of a complete overhaul of the PFI seem more about grabbing headlines than about delivering results. It would be far better to review the current funding models and improve the areas that need it, not completely scrap initiatives that have proved successful in the past.
And the PFI has had successes. By April 2009, it had delivered almost 650 signed school, hospital, transport and other infrastructure projects, according to the Treasury. While its flaws might grab the headlines, binning it would be a case of throwing away the bunch because of one bad grape. Yes, I have occasionally come across PFI schemes that have led me to question if it was the right solution for that particular case. On the other hand, I have come across many PFI schemes that seem to get the balance just right and have produced great services and value for money for taxpayers.
At a time when the public sector is short of money to continue infrastructure development, it is a relief that George Osborne seems to accept that there is a role for private sector funding. So, if it isn’t the source of funding, what is it that he dislikes so much about the PFI? Many reports have focused on the results of perceived framework inadequacies. Dissatisfaction with Transfer of Undertakings (Protection of Employment) (or Tupe), transfer into private sector pensions, delays, red tape, technical problems with completed buildings, rising costs, refinancing gains for the private sector – these seem to accompany the PFI whenever it makes it into the headlines. But the issue is not as simple as that.
It is vital to ask ourselves how many of these shortcomings are actually caused by the PFI. The answer is that hardly any of them are. Tupe and pension issues are just as prevalent in other outsourcing contracts as in the PFI. While the government has attempted to treat public sector employees fairly when transferred to the private sector, sometimes cost savings end up being made by reductions in staff and pensions. The time for delicacy around this issue is gone, as wages and pension costs are now, more than ever, a burning issue.
By the same token, delays, red tape, technical problems and costs can be a result of design faults or ambiguity on the part of the public sector procuring authority. This has little to do with the source of funding – publicly funded projects often meet the same fate. Private sector refinancing gains, one element unique to the PFI, show how government policy tends to follow market conditions, rather than predict them.
The PFI must be preserved and employed in the decade ahead, regardless of who forms the next government. Only by building on the successes of recent years, and eliminating bureaucracy and poor practice, will infrastructure development become efficient. There are many models to choose from, of which the PFI is just one, but overlooking it now would seriously endanger infrastructure development in the wake of the recession.
Tim Care is head of public services at law firm Dickinson Dees
