PAC calls for an end to government’s ‘fuzzy thinking’ over PFI

20 Jun 18

The government must be honest with the public about the true value for money of private finance initiatives, a group of MPs has urged today.

Although PFI has been used as a finance vehicle to keep the costs of public infrastructure off the Treasury’s balance sheet, the government has no plans to assess the value for money of the scheme, the Public Accounts Committee noted.

“Much has changed in the past quarter-century but government’s inability to answer basic questions about PFI remains undimmed,” chair of the committee Meg Hillier said.

“It beggars belief that such apparently institutionalised fuzzy thinking over such large sums of public money should have prevailed for so long.”

The Infrastructure and Projects Authority has identified a need for the UK to spend £300bn on infrastructure by 2020-21 but PF2 is only being proposed for two projects, which require total public and private investment of up to £7.8 billion, the report highlighted.

The PAC suggested this showed the initiative was becoming less popular with the government and if so the Treasury should make clear its current position on PFI.  

“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,” the PAC said.

“If this is the case the government should provide a clear explanation of its position.”

The PAC was concerned about the costs of the policy on local budgets, saying while it might keep expenditure off the Treasury’s books it involved on-going costs for organisations on the frontline.

“PFI contracts are inherently inflexible, which can have considerable impact on budgets at a local level and in some cases wastes taxpayers’ money,” the report said.  

The cross-party group of MPs highlighted the case of Liverpool City Council, which pays £4m annually in PFI costs for a school that has been empty since 2010, due to low pupil numbers.

The report noted that inflexible PFI costs can create “immense pain” at local level and that in some instances government departments and other public bodies had intervened and decided terminating a PFI contract represented the best value for money. 

Hillier added: “The Treasury simply cannot support its assertion that PFI represents good value for money.”

The PAC noted the government is now looking to collate information on PFI but is not planning to publish it.

The committee has recommended that the Treasury publish this data on PFI, as well as has how it monitors and shares good practice in contract management.

The PAC also recommended the Treasury should publish how it monitors the impact of PFI at local level and the circumstances in which it would proactively intervene to help public bodies struggling with their PFI legacy.

PFI, of which there are still 700 deals current, was reformed to create PF2 but the PAC said this reform was limited and allowed “greater transparency on a method that didn’t change fundamentally”.

Hillier said: “We are not convinced the design of PF2 has fixed the underlying weaknesses of the previous method.”

She added: “It is critical that taxpayers are not further lumbered with excessive costs arising from poor contracting.”

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