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9 December 2010 | Lindsay Clark
Profits from the UK’s private finance
initiative (PFI) deals could be used as a measure of value for money on large
government procurement programmes, MPs believe.
A report from the Committee ofPublic Accounts (PAC) examined PFI deals during the financial crisis. It suggested that
if private firms are making too much money from re-selling the finance or experiencing
an increase in share valuation on these programmes, then the original price
could be deemed poor value for money.
“If investors are systematically making gains on share
sales as well as from refinancing, that would suggest they are regularly
earning higher profits than were expected when contracts were signed,” the
report said. “If gains are excessive, this may indicate an overpriced contract
in the first place, raising concerns about value for money for taxpayers.”
The committee recommended the Treasury should monitor
profits from selling shares as well as refinancing.
The report found the cost of finance during
the banking crisis increased contract prices in 2009 for 35 projects by £1
billion over their 30-year lifetime. Overall, the Treasury did not do enough to
explore other means of finance, such as investors from pensions and insurance
funds, the committee said.
Margaret Hodge, PAC chairwoman, said: “During
the credit crisis, in 2009, at the very time the taxpayer was providing
unprecedented support to the banking system, the banks were increasing the cost
of financing PFI projects by up to a third, and transferring risks back to the
The report coincides with a campaign by MPs, which
aims to encourage banks, construction firms and service companies who have
benefited from the PFI over the past decade to give back a “small portion of
their profits to the taxpayer”.
“Many of these contracts have proven to be
shockingly expensive and bad value for money,” said campaign organiser Jesse
Norman, Conservative MP for Hereford and South Herefordshire. “At a time of
huge financial strain it is only right that these PFI companies should
contribute to our national recovery.”
The PFI Rebate campaign has so far been backed by