NAO: Revamped PFI little more than a rebrand

18 Jan 18

The revamped version of the private finance initiative – dubbed PF2 – has been little used and has few major differences from its predecessor, the National Audit Office has found.

Public Accounts Committee chair Meg Hillier accused HM Treasury of having rebranded PFI without fundamentally changing it.

Parliament’s spending watchdog said in a report PFI and PF2 that the latter had been implemented after the government became concerned that the 2008 financial crash meant the cost of private finance had increased.

The report was completed before fresh controversy erupted this week over government contracts with private firms following the collapse of contractor Carillion.

It said that PF2 was launched in December 2012 but that “the fundamental characteristics of PFI remain unchanged in the PF2 model”.

The first PF2 projects progressed with schools where “the contract and project documents used for these deals are slightly altered versions of PFI documents, demonstrating the limited changes between PFI and PF2”.

One of the key changes announced in HM Treasury’s PF2 launch document was not implemented, the NAO noted.

There was supposed to be higher levels of equity (20% to 25%) and lower levels of debt to make PF2 debt lower risk, so encouraging investors such as pension funds to invest and reduce debt costs.

But the six PF2 contracts let by September 2017 all had equity levels in the region of 10% and debt of 90% - “the same financial structure as PFI deals”, auditors noted.

No pension funds or other new investors had been attracted to invest in PF2 projects.

Meg Hillier, chair of the Public Accounts Committee, said: “After 25 years of PFI, there is still little evidence that it delivers enough benefit to offset the additional costs of borrowing money privately. Many local bodies are now shackled to inflexible PFI contracts that are exorbitantly expensive to change.

“I am concerned that Treasury has re-launched PFI under new branding, without doing anything about most of its underlying problems. We need more investment in our schools and hospitals but if we get the contracts wrong, taxpayers pay the price.”

A government spokesperson said: “We have reformed how we manage PFI contracts, and through PF2 have created a model which improves transparency and offers better value for money. 

“Taxpayer money is protected through PFI and PF2 as the risks of construction and long-term maintenance of a project are transferred to the private sector.

“Private finance is more transparent, with information and data published by government annually.”

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