MPs say too much profit suggests poor value on PFI

9 December 2010
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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 public sector.”

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 60 MPs.

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