Conservative MPs attack public finance initiative

A Conservative-dominated committee of MPs yesterday launched a scathing attack on the Government's Private Finance Initiative and called on the Chancellor to re-think the cornerstone of the scheme - that no capital spending projects be approved unless they have been considered for PFI funding.

The Commons Treasury Committee also voiced concern that the PFI may not meet its target of funding pounds 14bn worth of public projects by 1999 - jeopardising scores of health, transport and education programmes.

Despite fresh measures announced two weeks by Michael Jack, the Financial Secretary, to strengthen the PFI, the MPs levelled a series of criticisms at the initiative.

They expressed particular concern that the PFI could end up distorting investment decisions and making long-term planning of the infrastructure more difficult because the private sector would select projects on the basis of profitability, not need.

The MPs also warned that the PFI could result in public spending running out of control because of the way private contractors fund the capital cost of projects and then receive payments from the Government for running and maintenance.

The PFI was launched in 1992 with a pledge by the then-Chancellor, Norman Lamont, that it would bring in additional private funds to supplement public capital spending.

But in their report the MPs said it had become obvious that the PFI was being used to replace public spending. According to the Government's latest forecasts, public sector capital spending will fall by pounds 2.5bn between this year and 1998/9 while PFI spending is projected to rise to pounds 2.6bn by 1997/8.

The MPs said, however, that the Government's projections of PFI spending were "optimistic" and added: "If there is a serious shortfall in the PFI projections, it will be difficult to provide money from public capital budgets to fill the gap."

One of the MPs' key recommendations is that the Treasury should now consider scrapping the rule which requires government departments to explore PFI funding before giving the go-ahead to any capital project.

Critics have claimed that this leads to the initiative being clogged up considering projects that are clearly unsuitable for private funding while important programmes, particularly hospital projects, are held back.

Clive Betts, a Labour member of the committee, said: "One of our biggest worries is that the only schemes which may go ahead are ones that the private sector will fund. That means decisions about public spending priorities are being taken, not in the political arena, but on the basis of what makes private profits."