PFIs: a millstone around the neck for the public sector?

19 August 2011
Private finance initiatives – or PFIs – are increasingly looking like an example of a deal you do when you fail to consider the total cost of ownership. PFIs became particularly popular in the UK in the 90s and beyond as a means of quickly accessing funds for large projects – hospitals, schools etc. The private sector would stump up the cash, so the public sector could buy now and pay later (typically over a 30-year period). Now a critical cross-party Treasury select committee report, has said the long-term expense of PFI deals are now much higher than more conventional forms of borrowing. Currently, using a PFI deal for a new infrastructure project could end up costing up to 1.7 times more than it would if it was paid for directly out of the public purse. Writing in the report, the MPs said that too often, the size of the financial commitments undertaken and their impact on future budgets was not taken into account. Speaking on BBC Radio 4’s Today Programme this morning, Andrew Tyrie MP, the committee's Conservative chairman, said: “One of the reasons people engaged with PFI is that public procurement has always been very, very difficult, governments have ended up with huge cost overruns on projects and it was hoped to be possible to get private sector experience into how to run these projects.” PFIs started in 1992, and public procurement and supply chains, while still subject to a lot of difficulties, have come a long way since then. If commercial chiefs were involved in new infrastructure projects value for money overall, and not the lowest immediate cost, should be the starting point of discussions.
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