PFI deals could end up costing more than £300 billion

July 06, 2012 6:28 PM

The front page of the Guardian today brings to the fore the ever increasing costs of the 717 Private Finance Initiative (PFI) contracts across the UK which are being used to fund our schools, hospitals and other public facilities.

The total capital value of PFI projects across the country is £54.7 billion. The overall eventual cost is likely to be more than £300 billion by the time those contracts have been paid off, reflecting the cost of capital over their long terms. Our Director Matthew Sinclair has written in more detail on this here.

PFI is a method of creating public-private partnerships by funding public infrastructure projects with private capital. In principle, getting the private sector to shoulder some of the risk in massive infrastructure projects, and using private sector firms’ expertise to manage them, is a good thing. Unfortunately it has sometimes come at a high price.

PFI deals have provided some benefits, such as speeding up the construction process and reducing staffing costs, as reported by the Economist. But the schemes have also been criticised for providing poor value for money compared with the interest rates the Government would pay if it were to borrow money directly to pay for the projects.

In the first year of the Coalition, 61 new PFI schemes worth a total of £6.9 billion were progressed, despite the value for money credentials of PFI being weaker right now with the Government able to borrow at a very low rate. Some economists have suggested that the Government may have decided to expand PFI in order to keep the headline rates of debt and deficit down, and that would be very bad news. As the stakes are so high in major capital projects, it is vital that the Government finances and manages them in the right way. If they aren’t doing that taxpayers will pay a very heavy price.The front page of the Guardian today brings to the fore the ever increasing costs of the 717 Private Finance Initiative (PFI) contracts across the UK which are being used to fund our schools, hospitals and other public facilities.

The total capital value of PFI projects across the country is £54.7 billion. The overall eventual cost is likely to be more than £300 billion by the time those contracts have been paid off, reflecting the cost of capital over their long terms. Our Director Matthew Sinclair has written in more detail on this here.

PFI is a method of creating public-private partnerships by funding public infrastructure projects with private capital. In principle, getting the private sector to shoulder some of the risk in massive infrastructure projects, and using private sector firms’ expertise to manage them, is a good thing. Unfortunately it has sometimes come at a high price.

PFI deals have provided some benefits, such as speeding up the construction process and reducing staffing costs, as reported by the Economist. But the schemes have also been criticised for providing poor value for money compared with the interest rates the Government would pay if it were to borrow money directly to pay for the projects.

In the first year of the Coalition, 61 new PFI schemes worth a total of £6.9 billion were progressed, despite the value for money credentials of PFI being weaker right now with the Government able to borrow at a very low rate. Some economists have suggested that the Government may have decided to expand PFI in order to keep the headline rates of debt and deficit down, and that would be very bad news. As the stakes are so high in major capital projects, it is vital that the Government finances and manages them in the right way. If they aren’t doing that taxpayers will pay a very heavy price.

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