Member Article

PFI should be abolished, says MP

PFI must be abolished and replaced with a new model of public sector procurement, says Jesse Norman MP.

Published by conservative think tank, the Centre for Policy Studies, Norman shows that PFI has been one of the costliest experiments in public policy making, ever attempted.

Norman has led scrutiny of the flaws in PFI in the Treasury Select Committee, and suggests the initiative has led to £200bn of public debt, the equivalent to £8,000 for every household in the country.

His report makes 18 recommendations, including: placing all past and future liabilities on the government balance sheet as soon as possible; establishing a new central unit across government to monitor all PFI-style projects; ending the requirement to bundle “soft services” with infrastructure projects; and making existing and future contracts more transparent.

Tim Knox, Director of the Centre for Policy Studies comments: “The extraordinary cost and opacity of PFI under New Labour must never be allowed to happen again.

“Over £200 billion of new infrastructure is needed over the next decade. We cannot afford to get it so wrong again.”

PFI was originally introduced under the Tories by Norman Lamont in 1992, and was expanded by New Labour.

The report suggests PFI was attractive to New Labour as major capital projects were treated as off-balance sheet expenditure.

Another recent report from the Commons Public Accounts Committee has also suggested PFI is expensive and sustainable.

It warned that in some cases, investors were making significant gains from projects, while public sector bodies, such as NHS Trusts, were being forced to make further cuts due to required fixed-payments each year.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, 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.

“30 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 benefitting 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.”

This was posted in Bdaily's Members' News section by Tom Keighley .