Call for 'radical' rethink of PFI

 

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
and unsustainable.

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."

PA

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Gabriel Agbonlahor, Alexis Sanchez, Alan Pardew and Graziano Pelle
footballAfter QPR draw, follow Villa vs Arsenal, Newcastle vs Hull and Swansea vs Southampton
New Articles
i100... she's just started school
News
news
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
New Articles
i100... despite rising prices
Voices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
voices
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Cover Supervisor

£75 - £90 per day + negotiable: Randstad Education Group: Are you a cover supe...

Marketing Manager - Leicestershire - £35,000

£30000 - £35000 per annum: Ashdown Group: Marketing Manager (CIM, B2B, MS Offi...

Marketing Executive (B2B and B2C) - Rugby, Warwickshire

£22000 - £25000 per annum: Ashdown Group: A highly successful organisation wit...

SEN Coordinator + Teacher (SENCO)

£1 per day: Randstad Education Leeds: Job Purpose To work closely with the he...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam