Call for 'radical' rethink of PFI
Wednesday 02 May 2012
An influential committee of MPs today demanded a "radical"
rethink of the Government's Private Finance Initiative, branding the
model for attracting private cash into public sector projects expensive
Some 700 projects have been delivered under PFI since its introduction 20 years ago, and the taxpayer is committed to spending of around £200 billion in contracts covering as much as 30 years.
But the Commons Public Accounts Committee (PAC) warned that, in too many cases, investors have made "eye-wateringly high" profits while taxpayers are trapped in expensive and inflexible contracts.
And it said that the contracts - which require fixed payments every year - are forcing public sector bodies such as NHS trusts to make deeper cuts to services during the current period of austerity.
The Treasury announced in December that it would carry out a "fundamental reassessment" of PFI in order to develop a new delivery model that draws on private sector innovation at a lower cost to the taxpayer.
The committee urged the Treasury to use the ongoing review of PFI to produce a "qualitatively different policy" which reflects the true level of risk taken on by private companies.
Under the current set-up, investors have made annual returns as high as 60% by selling their shares in PFI projects, and there is evidence of "excess profits" being built into the initial pricing of contracts, said the report.
The PAC quoted a study suggesting that annual PFI charges paid by the public sector are 3%-5% higher than necessary because of inefficiencies in the way that the cost of providing equity is priced into the deals.
Public bodies using PFI to fund the construction and servicing of projects like hospitals, prisons or schools are required to show that the scheme will deliver better value for money than conventional procurement methods.
But the report said that the scheme had been treated by many as "the only feasible procurement route", in part because it allowed the cost of projects to be kept off the balance sheet.
Once the long-term contracts have been signed, it is "very difficult" to make changes, noted the MPs.
NHS trusts in particular were finding it difficult to meet their liabilities out of reduced resources. The report cited the example of the Queen Alexandra Hospital in Portsmouth, where the trust cut 700 jobs and closed 100 beds in an effort to manage annual running costs of £40 million.
PAC chairman Margaret Hodge said: "When a public authority chooses to fund a project using private finance it must be able to demonstrate that this was the best way to deliver real value for money for the taxpayer, not just a way to keep the project off the balance sheet.
"For too long, public sector authorities have treated 30-year PFI contracts as the only game in town. This has to end.
"The current model of PFI is unsustainable. Time and again my committee has reported on problems with PFI, including the costly contracting process and the prospect of little risk being transferred but high returns being enjoyed by investors.
"Thirty-year contracts are inflexible and don't allow managers to alter priorities or change services that have become outdated. We have even seen evidence of excess profits being priced into projects from the start.
"The Treasury has now embarked on a rethink and that must be radical, producing a qualitatively different policy.
"The Treasury review must find a private finance funding model that allows flexible delivery of public services and ends the era of investors receiving eye-wateringly high rewards while taking ever decreasing risks.
"Private companies benefiting from taxpayer-funded contracts must be transparent over the use of public money so that the public can be assured that value is being secured from the investment."
A Treasury spokeswoman said: "We welcome the PAC's support for the Government's fundamental review of private finance.
"The Government has already taken action to drive savings in the use of private finance. We aim to deliver a new model, which draws on private sector innovation but at a lower cost to the taxpayer and with better value for public services.
"This will ensure a fair deal for the taxpayer now and for the long term."
elephant appealThe first 23 lots in our charity auction have now gone. But there are 22 more still up for grabs
Jennifer Lawrence attacks mass media again over body image
scienceScientists find the answer to a question that even puzzled Darwin
A very timely Great Train Robbery and a frantic 24 Hours in A&E among the highlights
scienceThe new development in bio-printing technology could be used in the future to restore lost vision - though years of research still await
Geoffrey Macnab: The Wolf of Wall Street's account of white-collar excess is A Rake’s Progress on steroids
arts + entsThe 'Friends' actor on his new role as campaigner on addiction issues
Sun will 'flip upside down' within weeks, says Nasa
Colin Farrell reveals ‘affair’ with Elizabeth Taylor: 'She was my last romantic relationship'
Children evacuated from swimming pool after prosthetic leg mistaken for paedophile
Devyani Khobragade: India-US row escalates over arrest of diplomat in New York
Peter O'Toole: Tales of the late film icon
Exclusive: Young people ‘want UK to stay in Europe’: Four in 10 adults aged 18 to 24 are ‘firmly in favour’ of membership, poll shows
Fox News presenter tells viewers it is a 'fact' that both Jesus and Santa Claus are white
You can STILL be jailed for being a republican, government confirms, and it remains illegal to even 'imagine' overthrowing the Queen
Kiss and yell: Italian protester charged with sexual assault after kissing riot police officer
Fighting back: the woman giving a voice (and 49,999 others) to the victims of sexism - by giving an airing to their horror stories
PM denies two child limit for benefits is part of Tory welfare policy
- 1 Facebook 'self-censorship': study records when you don't post to find more ways to share
- 2 Sun will 'flip upside down' within weeks, says Nasa
- 3 ‘Why we don't have snow in Saudi Arabia’: Video captures winter fun as Middle East hit with rare blizzard
- 4 Vitamin pills are a waste of money, offer no health benefits and could be harmful - study
- 5 Children evacuated from swimming pool after prosthetic leg mistaken for paedophile
- < Previous
- Next >
£100 - £125 per day + Negotiable on role: Randstad Education London: Are you f...
£21000 - £30000 per annum: Randstad Education Leeds: A full time teacher job a...
£125 - £135 per day + Long Term Roles are negotiable: Randstad Education Londo...
£125 - £135 per day + negotiable for long term roles: Randstad Education Londo...