Problems with PFI

November 27, 2007 11:23 AM

Reuters report that the Public Accounts Committee has found that many PFI deals have been very expensive, up to 14 per cent more than before the PFI deal was put in place.

 

Getting private companies involved in the running of public services is a very good idea.  However, the important qualities that the private sector can bring to public services - efficiency, innovation and a focus on customer priorities aren't made use of much in PFI deals.  PFI deals typically have the private sector borrow, put fixed capital (such as a hospital or a prison) in place and then leave the operation of services within the public sector.  In other cases private firms will be asked to undertake particular functions, such as cleaning, rather than the wholesale operation of a facility or service.

 

Borrowing is one thing that government can do more affordably than the private sector.  Getting private firms in to do the borrowing is to choose perhaps the least useful contribution they can make to the running of public services.  When particular functions are handed over to the private sector they often do not have the flexibility to improve efficiency.

 

Instead, government and private sector both try to get the best price, for them, that they can.  Sometimes government gets the upper hand but that risks putting the private firm out of business.  If the private firm is put out of business, as in the case of Metronet, that means yet more cost to taxpayers and delays in the provision of important improvements in services.  More often, the private sector wins out and the taxpayer faces a bigger bill than they otherwise would.

 

By allowing the private sector to run services instead of just contracting out small functions or building facilities we can avoid this entire, expensive, zero-sum game.

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