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Editor's blog Thursday 22 September 2011: Prepare ye the way for a party conference announcement on PFI

Publish Date/Time: 
09/22/2011 - 07:28

If you were a cynical person, which of course I am not, you might think that today's plethora of media stories about the unaffordability of PFI was a prelude to some kind of announcement about what the Government (which is continuing to support such schemes) intends to do about the affordability issue.

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PFI stands for 'pure financial illiteracy': government has always been able to borrow more cheaply than the markets. Particularly since it now owns half the banks ...

And as the Commons Treasury Committee pointed out in its recent report on PFI, "PFI has always been more expensive than government borrowing, but since the financial crisis, the difference between the costs has widened sharply. The cost of capital for a typical PFI project is currently over 8%—double the long term government gilt rate of approximately 4%. The difference in finance costs means that PFI projects are significantly more expensive to fund over the life of a project. This represents a significant cost to taxpayers.

“We have not seen clear evidence of savings and benefits in other areas of PFI projects which are sufficient to offset this significantly higher cost of finance. Evidence we studied suggests that the out-turn costs of construction and service provision are broadly similar between PFI and traditional procured projects, although in some areas PFI seems to perform more poorly. For example we heard that design innovation was worse in PFI projects and we have seen reports which found out that building quality was of a lower standard in PFI buildings. PFI is also inherently inflexible, especially for NHS projects. This is in large part due to the financing structure and its costly and complex procurement procedure.

“There remain significant incentives to use PFI which are unrelated to value for money:
• The majority of PFI debt still does not appear in government debt or deficit figures;
• Government departments can use PFI to leverage up their budgets without using
their allotted capital budget—the investment is additional and not budgeted for.
“These incentives unrelated to value for money need to be removed”.

So. Action is clearly required. An announcement would be good, no?

What's coming up shortly?