The UK has 700 PFI contracts delivering a wide array of public assets and services with 61 further PFI projects in procurement and many other projects where PFI is being considered. Restrictions on capital budgets have meant that many of the assets delivered by PFI, including hospitals, schools, prisons, courts and roads might not otherwise have been built.
In the present public expenditure climate there are legitimate concerns being expressed about the continuing financial cost of PFI for public organizations such as NHS Trusts. Some of government’s case for using PFI has not been based on robust analysis, but on ill founded comparisons and invalid assumptions. On individual projects, the costs and benefits identified in business cases need to be revisited after contracts are signed and periodically thereafter, to inform future procurement decisions.
In particular, Government should revisit the tax assumptions it builds into the cost and benefit case for PFI. Government assumes tax revenue for Government from PFI investments, but one of the largest PFI investment funds told us that 72% of the shareholders of its management company are registered offshore.
Taxpayers could get a much better deal from PFI, as demonstrated by the buoyant and profitable market in PFI deals. The taxpayer’s position is made worse by poor transparency of investor and contract information alongside patchy public sector commercial skills. We suspect that initial investors are able to make excessive profits from selling PFI shares, yet we lack the information to know for sure. Freedom of information provisions do not currently apply to private providers of public services though investors told us they are willing to make more detailed information available. We believe there is a strong case for sharing these gains with the Government. We look to the Treasury and departments to make full use of existing contractual rights of access and further investor information to increase transparency and find ways for taxpayers to get a share of these gains.
At present, PFI deals look better value for the private sector than for the taxpayer. Private sector funds have built up portfolios of PFI projects from the large market that government has created. The private sector manages these projects as a portfolio, benefiting from potential economies of scale without any obligation to share such volume gains. Government, in contrast, has a fragmented approach and is not making use of its bulk buying power. We accept that contracts have got tighter over time and that the Treasury is seeking further efficiency savings, and would urge a bold and speedy approach. Achieving any savings on existing contracts will depend on voluntary agreements with investors and suppliers. We look forward to the results of a pilot project seeking to identify opportunities for public sector wide savings from existing contracts. The onus is on the Treasury and departments to negotiate tangible savings without putting the quality of public services at risk.
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Treasury, the Major Projects Authority and certain prominent investors on lessons from PFI and the implications for future projects.
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