Government slammed for PFI spending loopholes

22 September 2004
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23 September 2004 | Sam Fortescue

An influential think-tank has criticised the government for making the private finance initiative more attractive than conventional public-sector procurement, even where it may not bring best value.

The Institute of Public Policy Research (IPPR) says in a new study that, in spite of recent improvements, some public bodies still choose PFI for balance sheet reasons.

This is because Treasury financial reporting rules mean that certain PFI projects are not placed on a public-sector organisation's balance sheets as an expense.

The IPPR has called for PFI expenditure to be defined as capital investment because public bodies are mandated to publish these details.

Closing this loophole would eliminate the accounting advantage that comes with taking the PFI route instead of normal procurement, meaning that other procurement methods can be judged more fairly against PFI.

Public expenditure through PFI runs at around £4 billion a year, or 10-12 per cent of total investment in capital projects.

Tim Gosling, IPPR researcher and author of the study, said that PFI is a relatively small proportion of public investment but it is concentrated in areas such as building schools and hospitals.

"PFI is not suitable for all sorts of procurement. It is best in large capital projects with significant elements of risk transfer."

He criticised the absence of cast-iron guidelines on when to use PFI.

A Treasury spokesman told SM: "An evidence-based assessment of the value for money of PFI procurement should be made at both the investment programme and outline business case stage.

"Departments should ensure they have the budgetary flexibility in place to pursue alternative procurement routes should they prove more appropriate."

SMsep2004

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