Treasury must set out clear position on PFI

20 June 2018

The Public Accounts Committee report finds Government needs to level with taxpayers about model's value for money.

Treasury has no plans to assess the value for money of PFI

PFI has been used as a finance vehicle to fund public infrastructure off balance sheet for reporting public debt.

The initial gain has been to the Treasury as the expenditure has been kept off the books. However, the ongoing costs to the institutions at the front line have been high and the contracts inflexible, and the subject of much public debate.

Yet the Treasury has no plans to assess the value for money of PFI and there is little evidence of a strategy for working with local public sector bodies to co-ordinate sharing of best practice about managing existing PFI deals.

£4 million a year for school empty since 2014

The Committee raised concerns in 2011 and it is disappointing that so little progress has been made.

Liverpool City Council is paying £4 million a year for an empty school which underlines the worst extent of the inflexibility of PFI. This flawed deal will see almost £55.5million of taxpayer funds wasted since the school became empty in 2014.

Offshore funds have bought up about half of the equity in PFI and PF2 projects so that the projects' owners are increasingly remote from the public service being delivered. In addition, offshore owners of these projects pay little tax, thereby reducing one of the benefits used to justify the contracts in the first place.

Add to this the additional costs (and profits) generated by variations to the contract and the deal is not working for the taxpayer.

Treasury needs to be much clearer about its position on PFI

The Government's reform of PFI was ultimately fairly limited, with the new PF2 largely allowing greater transparency on a method that didn't change fundamentally.

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. If this is the case the Government should provide a clear explanation of its position.

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

The Treasury needs to be much clearer about its position on PFI—it maintains that the UK's level of debt and accounting treatment of PFI and PF2 do not form any part of the decision about whether to use PFI, but it is changing the design of PF2 to prevent capital costs of future projects from counting towards UK national debt statistics.

Chair's comments

Comment from Committee Chair, Meg Hillier MP:

"Much has changed in the past quarter-century but Government's inability to answer basic questions about PFI remains undimmed.
It beggars belief that such apparently institutionalised fuzzy thinking over such large sums of public money should have prevailed for so long.
The Treasury simply cannot support its assertion that PFI represents good value for money. Yet while Government is now seeking to collate the PFI data that does exist, it does not intend to publish the results of this work.
This is unacceptable. Government must level with taxpayers about the value of PFI.
The Treasury and Infrastructure and Projects Authority must also be far clearer about how it expects public bodies—many of whom are already locked into costly and inflexible PFI projects—to use PF2.
We are not convinced the design of PF2 has fixed the underlying weaknesses of the previous method.
Government's own figures suggest the UK needs to spend some £300 billion on infrastructure over the next couple of years. It is critical that taxpayers are not further lumbered with excessive costs arising from poor contracting."

Further information

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