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The private finance initiative (PFI) is a method to provide financial support for "public-private partnerships" (PPPs) between the public and private sectors. Developed initially by the Australian and United Kingdom governments, PFI has now also been adopted (under various guises) in Canada, the Czech Republic, Finland, France, Greece, India, Ireland, Israel, Japan, Malaysia, the Netherlands, Norway, Portugal, Singapore, and the United States (amongst others) as part of a wider program for privatization and deregulation driven by corporations, national governments, and international bodies such as the World Trade Organization, International Monetary Fund, and World Bank.

Contents

Overview

The private finance initiative (PFI) is a procurement method which secures private funding for public institutions in return for part-privatisation. PFI is also an operational framework which transfers responsibility, but not accountability, for the delivery of public services to private companies. PFI projects aim to deliver infrastructure on behalf of the public sector, together with the provision of associated services such as maintenance. Under PFI the private sector operates facilities as well as providing finance, so some public sector staff have their employment contracts transferred to the private sector through a process known as TUPE. Every PFI deal has its own particular characteristics, however there are common threads which this article seeks to explore.

History

The private finance initiative (PFI) was invented in Australia in the late 1980s, and was originally applied to toll road and railway projects.[1] In 1992 PFI was implemented for the first time in the UK by the Conservative government of John Major. It immediately proved controversial, and was attacked by the Labour Party while in opposition. Labour critics such as the future Secretary of State for Health, Patricia Hewitt considered that PFI was really a back-door form of privatisation (House of Commons, December 7, 1993), and the future Chancellor of the Exchequer, Alistair Darling warned that "apparent savings now could be countered by the formidable commitment on revenue expenditure in years to come".[2] Nonetheless, the Treasury considered the scheme advantageous and pushed Labour to adopt it after the 1997 General Election. Two months after the party took office, the Health Secretary, Alan Milburn, announced that "when there is a limited amount of public-sector capital available, as there is, it's PFI or bust".[2] Since then PFI has continued and, indeed, expanded under Labour, resulting in criticism from many trade unions, elements of the Labour Party, the Scottish National Party (SNP), and the Green Party, as well as independent commentators such as George Monbiot and academics such as Prof. Allyson Pollock, Prof. Jean Shaoul and Dr Adrian Bell.

Both Conservative and Labour governments have sought to justify PFI on the ideological[3] grounds that the private sector is better at delivering services than the public sector. In her book NHS plc Allyson Pollock recalls that in 1997

Geoffrey Robinson, a former businessman and now Paymaster-General, agreed to meet me... to discuss Labour's embrace of the PFI. ... He listened politely to my analysis of the PFI, based on a detailed study of PFI business cases, his chief aide taking copious notes while we drank tea. When I was done, Robinson responded by praising the virtues of the private sector and inviting me to join him for a drink on the terrace of the House of Commons. An even more significant figure who did not care to engage in a serious discussion of the issues was the Chancellor of the Exchequer, Gordon Brown. In 2002 I asked him if he could explain the rationale behind the use of private finance for public investment, given that private borrowing was more expensive, and the risks were not in practice transferred to the private sector. His response was simply to declare repeatedly that the public sector is bad at management, and that only the private sector is efficient and can manage services well.[4]

The current global financial crisis has presented PFI with difficulties because many sources of private capital have dried up. Nevertheless, PFI remains the UK government's preferred method for public sector procurement. In January 2009 the Secretary of State for Health, Alan Johnson reaffirmed this commitment with regard to the health sector, stating that “PFIs have always been the NHS’s ‘plan A’ for building new hospitals … There was never a ‘plan B’".[5] However, because of banks' unwillingness to lend money for PFI projects, the government now has to fund the so-called 'private' finance initiative itself. In March 2009 it was announced that the Treasury is to lend £2bn of public money to private firms building schools and other projects under PFI.[6] In a written statement, Chief Secretary to the Treasury, Yvette Cooper claimed that the loans should ensure that projects worth £13bn — including waste treatment projects, environmental schemes and schools — would not be delayed or cancelled. She also promised that the loans would be temporary and would be repaid at a commercial rate. But Liberal Democrats Treasury spokesman Vince Cable argued that the government should return to more traditional public financing structures rather than propping up PFI with public money, saying:

The whole thing has become terribly opaque and dishonest and it's a way of hiding obligations. PFI has now largely broken down and we are in the ludicrous situation where the government is having to provide the funds for the private finance initiative.[6]

Even the Conservative Party considers that, with the taxpayer now funding it directly, PFI has become "ridiculous". Philip Hammond, their Treasury spokesman, says

If you take the private finance out of PFI, you haven’t got much left . . . if you transfer the financial risk back to the public sector, then that has to be reflected in the structure of the contracts. The public sector cannot simply step in and lend the money to itself, taking more risk so that the PFI structure can be maintained while leaving the private sector with the high returns these projects can bring. That seems to us fairly ridiculous.[1]

In an interview in November 2009 the Shadow Chancellor George Osborne sought to distance the Conservatives from the excesses of PFI by blaming the Labour government for its misuse. If elected, he is apparently proposing a modified PFI which preserves the arrangement of private sector investment for public infrastructure projects in return for part-privatisation, but ensures proper risk transfer to the private sector along with transparent accounting:

The government's use of PFI [the private finance initiative] has become totally discredited, so we need new ways to leverage private-sector investment . . . Labour's PFI model is flawed and must be replaced. We need a new system that doesn't pretend that risks have been transferred to the private sector when they can't be, and that genuinely transfers risks when they can be . . . On PFI, we are drawing up alternative models that are more transparent and better value for taxpayers. The first step is transparent accounting, to remove the perverse incentives that result in PFI simply being used to keep liabilities off the balance sheet. The government has been using the same approach as the banks did, with disastrous consequences. We need a more honest and flexible approach to building the hospitals and schools the country needs. For projects such as major transport infrastructure we are developing alternative models that shift risk on to the private sector. The current system – heads the contractor wins, tails the taxpayer loses – will end.[7]

On the other hand, Peter Dixon, the Chairman of University College Hospital (the largest PFI-built hospital in England) argues that public sector funding is the way forward:

now that we have discovered that unlimited debt is OK for UK plc in order to prop up failed financial institutions, it is hard to continue to argue that we can't use public debt to create long term assets – schools, hospitals, affordable homes.[8]

Relationship with government

Treasury

In July 1997 a PFI taskforce was established within the Treasury to provide central co-ordination for the roll-out of PFI. Known as the Treasury Taskforce (TTF), its main responsibilities are to standardise the procurement process and train staff throughout government in the ways of PFI, especially in the private finance units of other government departments. The TTF initially consisted of a policy arm staffed by five civil servants, and a projects section employing eight private sector executives led by Adrian Montague, formally co-head of Global Project Finance at investment bank Dresdner Kleinwort Benson. In 1999 the policy arm was moved to the Office of Government Commerce (OGC), but it was subsequently moved back to the Treasury. The projects section was part-privatised and became Partnerships UK (PUK). The Treasury retains a 49% 'golden share', while the majority stake in PUK is owned by private sector investors. PUK is now staffed almost entirely by private sector procurement specialists such as corporate lawyers, investment bankers, consultants and so forth. It takes the lead role in evangelising PFI and its variants within government, and is in control of the policy's day-to-day implementation.[9]

In March 2009, in the face of funding difficulties caused by the global financial crisis, the Treasury established an Infrastructure Finance Unit with a mandate to ensure the continuation of PFI projects.[10] In April 2009, the unit stumped up £120m of public money to ensure that a new waste disposal project in Manchester would go ahead. Andy Rose, the unit head, said: "This is what we were set up to do, to get involved where private sector capital is not available."[10] In May 2009 the unit proposed to provide £30m to bail out a second PFI project, a £700m waste treatment plant in Wakefield. In response, Tony Travers, Director of the Greater London group at the London School of Economics described the use of public money to finance PFI as "Alice in Wonderland economics".[11]

Scrutiny

The UK National Audit Office (NAO) scrutinises public spending throughout the UK on behalf of the British Parliament and is independent of Government. It provides reports on the value for money of many PFI transactions and makes recommendations. The Public Accounts Committee and Audit Commission also provide reports on these issues at a UK-wide level. The devolved governments of Scotland, Wales and Northern Ireland have their own equivalents of the NAO such as the Wales Audit Office and the Northern Ireland Audit Office which review PFI projects in their respective localities. In recent years the Finance Committees of the Scottish Parliament and the National Assembly for Wales have held enquiries into whether PFI represents good value for money.

Appraisal process

In accordance with the government's own admission that "there is no plan B",[5] the procurement appraisal process for government projects has been rigged in favour of PFI. Thus Jeremy Colman, former deputy general of the National Audit Office and the current Auditor General for Wales is quoted in the Financial Times article[12] saying that many PFI appraisals suffer from "spurious precision" and others are based on "pseudo-scientific mumbo-jumbo". Some, he says, are simply "utter rubbish". He noted government pressures on contracting authorities to weight their appraisals in favour of taking their projects down the PFI route: "If the answer comes out wrong you don't get your project. So the answer doesn't come out wrong very often."

In a paper published in the British Medical Journal a team consisting of two public health specialists and an economist concluded that many PFI appraisals do not correctly calculate the true risks involved. They argued that the appraisal system is highly subjective in its evaluation of risk transferral to the private sector. An example was an NHS project where the risk that clinical cost savings might not be achieved was theoretically transferred to the private sector. In the appraisal this risk was valued at £5m but in practice the private contractor had no responsibility for ensuring clinical cost-savings and faced no penalty if there were none. Therefore the supposed risk transfer was in fact spurious.[13]

Local government

PFI is used in both central and local government. In the case of local government projects, the capital element of the funding which enables the local authority to pay the private sector for these projects is given by central government in the form of what are known as PFI "credits". The local authority then selects a private company to perform the work, and transfers detailed control of the project, and in theory the risk, to the company.

Mechanics

Contracts

A public sector authority signs a contract with a private sector consortium, technically known as a Special Purpose Vehicle (SPV). This consortium is typically formed for the specific purpose of providing the PFI. It is owned by a number of private sector investors, usually including a construction company and a service provider, and often a bank as well. The consortium's funding will be used to build the facility and to undertake maintenance and capital replacement during the life-cycle of the contract.

PFI contracts are for long terms, typically 30–60 years.[14] During the period of the contract the consortium will provide certain services, which were previously provided by the public sector. The consortium is paid for the work over the course of the contract on a "no service no fee" performance basis.

The public authority will design an "output specification" which is a document setting out what the consortium is expected to achieve. If the consortium fails to meet any of the agreed standards it should lose an element of its payment until standards improve. If standards do not improve after an agreed period, the public sector authority is usually entitled to terminate the contract, compensate the consortium where appropriate, and take ownership of the project.

Termination procedures are highly complex, as most projects are not able to secure private financing without assurances that the debt financing of the project will be repaid in the case of termination. In most termination cases the public sector is required to repay the debt and take ownership of the project. In practice, termination is considered a last resort only.

Whether public interest is at all protected by a particular PFI contract is highly dependent on how well or badly the contract was written and the determination (or not) and capacity of the contracting authority to enforce it. Many steps have been taken over the years to standardise the form of PFI contracts to ensure public interests are better protected.

Structure of providers

The typical PFI provider is organized into three parts or legal entities: a holding company (called "Topco") which is the same as the SPV mentioned above, a capital equipment or infrastructure provision company (called "Capco"), and a services or operating company (called "Opco"). The main contract is between the public sector authority and the Topco. Requirements then 'flow down' from the Topco to the Capco and Opco via secondary contracts. Further requirements then flow down to subcontractors, again with contracts to match. Often the main subcontractors are companies with the same shareholders as the Topco.

Method of funding

Prior to the global financial crisis of 2008–2009, large PFI projects were funded through the sale of corporate bonds, issued by the company running the PFI. Since the crisis, funding by senior debt has become more common. Smaller PFI projects - the majority by number - have typically always been funded directly by banks in the form of senior debt. Senior debt is generally slightly more expensive than bonds, which the banks would argue is due to their more accurate understanding of the credit-worthiness of PFI deals - they may consider that monoline providers underestimate the risk, especially during the construction stage, and hence can offer a better price than the banks are willing to. Since the global financial crisis of 2008–2009, senior debt has been provided to UK PFIs by the European Investment Bank (EIB) and the newly founded Treasury Infrastructure Finance Unit (TIFU) alongside banks in some PFIs. A recent example where this has taken place is the Manchester Waste PFI.

Refinancing of PFI deals is common. Once construction is complete, the risk profile of a project can be lower, so cheaper debt can be obtained. This refinancing might in the future be done via bonds — the construction stage is financed using bank debt, and then bonds for the much longer period of operation. In most PFI contracts, the benefits of refinancing must be shared with the government.

The banks who fund PFI projects are repaid by the consortium from the money received from the government during the lifespan of the contract. From the point of view of the private sector, PFI borrowing is considered low risk because public sector authorities are very unlikely to default. Indeed, under IMF rules, national governments are not permitted to go bankrupt (although this is sometimes ignored, as when Argentina defaulted on its foreign debt). Repayment depends entirely on the ability of the consortium to deliver the services in accordance with the output specified in the contract.

Example projects

A full list of PFI Projects can be provided by HM Treasury, however the following are notable examples:

Some PFI cases
Location Project Name Cost Authority Sector References
Berlin British Embassy Foreign Office Central Government
Coventry University Hospital Coventry £410m University Hospitals Coventry and Warwickshire NHS Trust Health [2][15]
Herefordshire Whitecross High School £18m Herefordshire County Council Education
Kent Medway Police HQ £30m Kent Police Blue Light [16]
Kent Princess Royal University Hospital Bromley NHS Trust Health [17]
Leeds Newsam Centre at Seacroft Hospital £47m Leeds Mental Health Teaching NHS Trust Health [18]
London National Physical Laboratory Central Government [19]
London Queen Elizabeth Hospital Queen Elizabeth Hospital NHS Trust Health [17]
National Future Strategic Tanker Aircraft £10bn Royal Air Force Defence
National The STEPS Deal Inland Revenue Central Government [20][21]
Northern Ireland Balmoral High School £17m Belfast Education and Library Board Education [22]
Scotland Skye Bridge £93m Scottish Office Transport [23]
Worcester Worcestershire Royal Hospital £95m Worcestershire Hospitals NHS Trust Health [17]

Impact

Service delivery

There is evidence that PFI is adversely affecting service delivery. Dr. Jonathan Fielden, chair of the British Medical Association's consultants' committee has said that PFI debts are "distorting clinical priorities" and impacting the treatment given to patients. Dr. Fielden cited the example of University Hospital Coventry where the NHS Trust was forced to borrow money in order to make the first £54m payment owed to the PFI contractor. The trust was in the ignominious position of struggling for money before the hospital's doors even opened. Dr. Fielden said:

We know there that they do have a fabulous new facility there but the payments they are tied into – the long term 30-plus year deal – means that because the amount of money coming in under the 'Payment by Results' scheme is now less than predicted and they are mothballing services, closing wards and not running all their theatres that they could do. We cannot have these long term debts – these long term debts are distorting clinical priorities now, they are distorting our ability to treat patients.[15]

The high costs of hospitals built under PFI are forcing service cuts at neighbouring NHS hospitals. A Strategic Health Authority paper in 2007 noted debts at both Princess Royal University Hospital and Queen Elizabeth Hospital in south-east London, attributing these partly to their high fixed PFI costs, and suggesting that the same would soon apply at Lewisham Hospital too. Because PFI costs are fixed and there are big penalties for terminating contracts, the effect of these debts is to increase the risk of services being closed at nearby hospitals built with public capital, such as Guy's, St Thomas', King's College and Queen Mary's. Peter Dixon, Chairman of University College Hospital, the largest PFI-built hospital in England, has gone on the record to say:

We now have indexed payments for the next 35 years which at a time of growing concern over NHS budgets can only be a millstone. It isn't just that our scheme was expensive. Its very existence distorts whatever else needs to happen in this part of London and beyond. And that is before we get to paying for the much larger scheme at Bart's and the London in a few years' time.[8]

Overspending at the PFI-funded Worcestershire Royal Hospital has also put a question mark over services at neighbouring hospitals[17]

Public health

Because PFI is so prevalent in the UK health sector, it has become a serious public health issue in its own right. Instead of focusing on the needs of patients, some health authorities have become preoccupied with the design and management of PFI contracts, projects and operations[24] and when mistakes occur, patients are adversely affected. In recent years, the two most serious C. difficile infection outbreaks in UK hospitals occurred at Stoke Mandeville where 33 patients died between 2003-5, and at Maidstone and Tunbridge Wells NHS Trust between 2004-6 where at least 1,100 were infected and about 90 died. These outbreaks were subsequently investigated by the Healthcare Commission. According to Richard James, Professor of Microbiology at Nottingham University the most striking finding of the commission is the "mirror image" between what happened at the two hospital trusts: "These might be characterised as the risks of reorganisation. Both trusts had undergone difficult mergers, both were preoccupied with finance and both were trying to reconfigure services and build a private finance initiative (PFI) hospital." Prof. James adds that both hospitals allowed infection control measures to be "over-ridden by other imperatives, including targets relating to finance". The Healthcare Commission itself said that focus on the complexities of finance had been "at the price" of infection control.[24]

Project specification and execution

George Monbiot argues[3] that the specifications of many public infrastructure projects have been distorted to increase their profitability for PFI contractors, specifically:

A hospital scheme in Coventry was reverse-engineered by health chiefs to attract private capital. The city’s two hospitals were to have been renovated by the public sector for £30m. Instead they were demolished and one was rebuilt for £410m ... Like the hospital in Coventry, the M25 widening scheme appears to been designed to maximise corporate profits. The Campaign for Better Transport points out that if the whole scheme had used existing hard shoulders rather than building new lanes, the total cost would have been £478m – not £5bn.[25]

There is also evidence that some PFI projects have been shoddily specified and executed. For example, in 2005 a confidential government report condemned the PFI-funded Newsam Centre at Seacroft Hospital for jeopardising the lives of 300 patients and staff. The Newsam Centre is for people with life-long learning difficulties and the mentally ill. The report said that there were shortcomings "in each of the five key areas of documentation, design, construction, operation and management" at the hospital, which cost £47m. Between 2001-5 there were four patient suicides, including one which was left undiscovered for four days in an out-of-order bathroom. The coroner said that Leeds Mental Health Teaching NHS Trust, which is responsible for the facility, had failed to keep patients under proper observation. The government report said that the design and construction of the building did not meet the requirements for a facility for mental patients. The building has curving corridors which make patient observation and quick evacuation difficult. The report said that the building also constituted a fire hazard, as it was constructed without proper fire protection materials in the wall and floor joints. In addition, mattresses and chairs used below-standard fire-retardant materials. Patients were allowed to smoke in rooms where they could not be easily observed. The fire-safety manual was described as "very poor", and the fire-safety procedure consisted of a post-it note marked "to be provided by the Trust". Unsurprisingly the report concluded that "every section of the fire safety code" had been breached.[18]

On the other hand, the building of two new PFI Police Stations on behalf of Kent Police serving the Medway area and the North Kent area (Gravesend and Dartford) is credited as a successful PFI project. Supporters say that the new buildings take into account the modern needs of the police better than the 60s/70s building, and that another advantage is that the old buildings can be sold for income or redeveloped into the police estate [16], although there is no reason why these same benefits would not have accrued had the project been publicly funded.

According to HM Treasury and National Audit Office reports, PFI deals are very much more likely to be delivered on time and on budget — a study by the Treasury in July 2003 showed that the only deals in its sample which were over budget were those where the public sector changed their minds after deciding what they wanted and from whom they wanted to buy it[26]. However, Peter Dixon says:

The issue is how we handle our procurements and manage our projects. Let's face it, if the public sector can't be trusted to procure a sensible building contract, it certainly can't be relied upon to procure a successful PFI with a 35-year term.[8]

Risk management

Supporters of PFI claim that risk is successfully transferred from public to private sectors as a result of PFI, and that the private sector is better at risk management. As an example of successful risk transfer they cite the case of the National Physical Laboratory. This deal ultimately caused the collapse of the building contractor Laser (a joint venture between Serco Group and John Laing) when the cost of the complex scientific laboratory, which was ultimately built, was very much larger than estimated.[19]

On the other hand, Allyson Pollock argues that in many PFI projects risks are not in fact transferred to the private sector[4] and, based on the research findings of Pollock and others, George Monbiot argues[3] that the calculation of risk in PFI projects is highly subjective, and is skewed to favour the private sector:

When private companies take on a PFI project, they are deemed to acquire risks the state would otherwise have carried. These risks carry a price, which proves to be remarkably responsive to the outcome you want. A paper in the British Medical Journal shows that before risk was costed, the hospital schemes it studied would have been built much more cheaply with public funds. After the risk was costed, they all tipped the other way; in several cases by less than 0.1%.[27]

Employment

Traditionally, when spending is tight and budgets are cut, hospitals prefer to retain doctors, nurses and keep services running by reining-in spending on building maintenance. But under PFI, hospitals are forced to prioritise contractual payments over jobs, and according to figures published by the Department of Health these committed payments can account for up to 20% of annual turnover[28]. Nigel Edwards, head of policy for the NHS Confederation, noted that

"A hospital with a PFI scheme [is] contractually bound to keep the maintenance up – and if you are spending 10 or 15 per cent on your buildings it means all the other efficiency and productivity gains you need have to come out of only 85 or 90 per cent of your budget."[28]

Dr Jonathan Fielden, chair of the British Medical Association's consultants' committee has said that as a result of the high costs of a PFI scheme in Coventry "they are potentially reducing jobs".[15] In fact by 2005 the hospital trust in Coventry was anticipating a deficit of £13m due to PFI and “drastic measures” were required to plug the gap including shutting one ward, removing eight beds from another, shortening the opening hours of the Surgical Assessment Unit, and the “rationalisation of certain posts” – which meant cutting 116 jobs.[2]

Under PFI, many staff have their employment contracts automatically transferred to the private sector, using a process known as TUPE. In many cases this results in the terms of employment, such as pensions, becoming worse. Heather Wakefield, UNISON's national secretary for local government, has said:

Local authorities and health authorities have very good final-salary pension schemes. We have surveyed contractors in 'best value' [contracting out] deals. At only one company in the past three years was any pension provided. And that is the pattern [in transfers] across the public sector – not just in local government, and not just 'best value'. It happens in PFI too. Tupe does not apply to pensions. The Government is supposed to have revised Tupe, integrating the Acquired Rights Directive from the EU. That has not happened.[29]

Finance

PFI is said to be "like a corporate welfare scheme"[2] because projects are on average 30% more expensive under PFI than if publicly funded.[30] Mark Hellowell and Prof. Allyson Pollock of the University of Edinburgh say that "the debt created by PFI has a significant impact on the finances of public bodies".[9] As of October 2007 the total capital value of PFI contracts signed throughout the UK was £68bn.[1] However, this figure pales into insignificance compared with the commitment of central and local government to pay a further £215bn[1] over the lifetime of these contracts. To break this down by region, the £5.2bn of PFI investment in Scotland up to 2007 has created a public sector cash liability of £22.3bn[9] and the investment of £618m via PFI in Wales up to 2007 has created a public sector cash liability of £3.3bn.[14]

Payments to the private owners of the PFI schemes are stretching already constricted budgets. Many NHS Trusts are in serious financial difficulty already and, if the level of government spending falls, some may become insolvent. In some cases Trusts are having to 'rationalise' spending by closing wards and laying off staff, but they are not allowed to default on their PFI payments: "In September 1997 the government declared that these payments would be legally guaranteed: beds, doctors, nurses and managers could be sacrificed, but not the annual donation to the Fat Cats Protection League."[2] If certain Trusts do 'fail' because they cannot meet their PFI payments, this will provide a further opportunity for privatisation if the government chooses to bring in private healthcare corporations to run the hospitals instead.

PFI contracts are currently off-balance-sheet, meaning that they do not show up as part of the national debt as measured by government statistics such as the Public Sector Borrowing Requirement (PSBR). The technical reason for this is that the government authority taking out the PFI contract pays a single charge (the 'Unitary Charge') for both the initial capital spend and the on-going maintenance and operation costs. This means that the entire contract is classed as revenue spending rather than capital spending. As a result neither the capital spend nor the long-term revenue obligation appears on the government's balance sheet. Were the total PFI liability to be shown on the UK balance sheet it would greatly increase the UK national debt. When international accounting standards are adopted this will probably result in most PFI debt being brought onto the Government's balance sheet. Even supporters of PFI have recognised that this lack of transparency is an issue. For example, in 2007 Neil Bentley, the CBI's Director of Public Services, told a conference that the CBI was keen for the government to press ahead with accounting rule changes that would put large numbers of PFI projects onto the government's books. He was concerned that accusations of "accounting tricks" were delaying PFI projects.[31]

Although supporters claim that the majority of PFI projects come in on budget and on time or early[citation needed], a number of PFI projects have cost considerably more than originally anticipated. In comparison with the very successful[citation needed] Queen Elizabeth II Thames crossing, the Skye Bridge, completed in 1995, regarded by some as the first ever PFI project, infamously cost £93m (and required the closure of the existing ferry to prevent competition), although it was supposed to cost only £15m.[23]

A National Audit Office study in 2003 endorsed the view that PFI projects represent good value for taxpayers' money, but some commentators have criticised PFI for allowing excessive profits for private companies at the expense of the tax payer. An investigation by Professor Jean Shaoul of Manchester Business School into the profitability of PFI deals based on accounts filed at Companies House revealed that the rate of return for the companies on twelve large PFI Hospitals was 58%.[15] Excessive profits can be made when PFI projects are refinanced. An article in the Financial Times recalls the

acute embarrassment of the early days of PFI, when investors in projects made millions of pounds from refinancings and it turned out that the taxpayer had no right to any share in the gains ... Investors in one of the early prison projects, for example, made a £14m windfall gain and hugely increased rates of return when they used falling interest rates to refinance.[32]

Some PFI deals have also been associated with tax avoidance, including a deal to sell properties belonging to the UK government's own tax authority. The House of Commons Public Accounts Committee criticised HM Revenue and Customs over the PFI STEPS deal to sell about 600 properties to a company called Mapeley, based in the tax haven of Bermuda. The committee said it was "a very serious blow indeed" for the government's own tax-collecting services to have entered into the contract with Mapeley, whom they described as "tax avoiders". Conservative MP Edward Leigh said there were "significant weaknesses" in the way the contract was negotiated. The government agencies had failed to clarify Mapeley's tax plans until a late stage in the negotiations. Mr. Leigh said: "It is incredible that the Inland Revenue, of all departments, did not, during contract negotiations, find out more about Mapeley's structure".[20]

Complexity, waste and inefficiency

Critics claim that the complexity of many PFI projects is a barrier to accountability. For example, a report by the Trade Union UNISON entitled "What is Wrong with PFI in Schools?" says:

LEAs often seek to withhold crucially important financial information about matters such as affordability and value for money. In addition, the complexity of many PFI projects means that governors, teachers and support staff are often asked to “take on trust” assurances about proposals which have important implications for them.[33]

A BBC Radio 4 investigation into PFI noted the case of Balmoral High School in Northern Ireland which cost £17m to build in 2002. In 2007 the decision was made to close the school because of lack of pupils. But the PFI contract is due to run for another 20 years, so the taxpayer will be paying millions of pounds for an unused facility.[22]

With regard to hospitals, Prof. Nick Bosanquet of Imperial College London has gone on the record to say that many PFI projects were commissioned without a proper understanding of the costs, resulting in a number of hospitals which are too expensive. He said:

There are already one or two PFI hospitals where wards and wings are standing empty because nobody wants to buy their services. There will be a temptation to say 'right we are stuck with these contracts so we will close down older hospitals', which may in fact be lower cost. Just closing down non-PFI hospitals in order to up activity in the PFI ones is not going to be the answer because we may have the wrong kind of services in the wrong places.[15]

References

  1. ^ a b c d Timmins, Nicholas (February 24th, 2009), "Projects Seek Partners", Financial Times, http://www.ft.com 
  2. ^ a b c d e f Monbiot, George (September 4, 2007), "This Great Free-Market Experiment Is More Like A Corporate Welfare Scheme", The Guardian, http://www.guardian.co.uk/commentisfree/2007/sep/04/comment.politics 
  3. ^ a b c Monbiot, George (2009-04-07), "The Biggest Weirdest Rip-Off Yet", The Guardian, http://www.guardian.co.uk/commentisfree/2009/apr/07/olympics-2012-m25-pfi 
  4. ^ a b Pollock, Allyson (2005). NHS Plc: The Privatisation of Our Health Care. Verso. pp. 3. ISBN 1844675394. 
  5. ^ a b Omonira-Oyekanmi, Rebecca. "Root of the Problem". PPP Bulletin. http://www.pppbulletin.com/features/view/791. Retrieved 2009-02-04. 
  6. ^ a b "Government to 'prop up' PFI deals". BBC. 2009-03-03. http://news.bbc.co.uk/1/hi/uk_politics/7920522.stm. Retrieved 2009-03-03. 
  7. ^ Hutton, Will (15 November 2009). "The Great Debate: Will Hutton vs. George Osborne". The Observer (London). http://www.guardian.co.uk/politics/2009/nov/15/will-hutton-george-osborne-debate. 
  8. ^ a b c Dixon, Peter (13 November 2009). "We can't fool ourselves – PFI is a liability". The Guardian (London). http://www.guardian.co.uk/commentisfree/2009/nov/13/pfi-hospitals. 
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  13. ^ Gaffney, D.; Pollock, Allyson M.; Price, D.; Shaoul, J. (1999), "PFI in the NHS: is there an economic case?", British Medical Journal 319 
  14. ^ a b Hellowell, Mark; Pollock, Allyson M. (2007), Written Evidence to the National Assembly for Wales Finance Committee with Regards to its Inquiry on Public Private Partnerships, University of Edinburgh, http://www.health.ed.ac.uk/CIPHP/Documents/EvidencetoWelshFinanceCommittee_Dec2007_000.pdf 
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  16. ^ a b "Flagship Police HQ Formally Open". BBC. May 28, 2008. http://news.bbc.co.uk/1/hi/england/kent/7424254.stm. 
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  20. ^ a b Press Association (June 14, 2005), "Customs Criticised Over Offshore Property Deal", The Guardian, http://www.guardian.co.uk/politics/2005/jun/14/immigrationpolicy 
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  25. ^ Campaign for Better Transport. "Award of £5bn M25 PFI contract shows appalling judgment". http://www.bettertransport.org.uk/media/press_releases/may_2008/m25. Retrieved 2008-05-08. 
  26. ^ PFI - Meeting The Challenge, HM Treasury, http://www.hm-treasury.gov.uk/ 
  27. ^ Pollock, Allyson M; Jean Shaoul and Neil Vickers (18th May 2002). "Private finance and “value for money” in NHS hospitals: a policy in search of a rationale?". British Medical Journal 342: 1205–1209. 
  28. ^ a b Timmins, Nicholas (23 January 2010). "Spending Squeeze To Hurt Hospitals The Most". Financial Times (London). 
  29. ^ Morgan, Oliver; Mathiason, Nick (6th October 2006), "Public-private discord: Taxpayers will foot the bill if the City has got its sums wrong on PFI", The Observer, http://www.guardian.co.uk/business/2002/oct/06/publicservices.publicservices 
  30. ^ Woodward, Stephen (2007), PPP/PFI In The UK - Is There An Alternative?, Trett Digest, http://www.trett.com/digest/doit.asp?iss=33&art=6 
  31. ^ Timmins, Nicholas (October 17, 2008), "Treasury to ensure taxpayer is not the loser in PFI deals", Financial Times, http://www.ft.com 
  32. ^ Timmins, Nicholas (October 24, 2007), "Business to call for clarity on future of PFI deals", Financial Times, http://www.ft.com 
  33. ^ Unison (2003), What is Wrong with PFI in Schools?, Unison, http://www.unison.org.uk/acrobat/13672.pdf 

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