Private finance initiative
In 2003, the National Audit Office felt that it provided good value for money overall;[3] according to critics, PFI has been used simply to place a great amount of debt "off-balance-sheet".
[15] Two months after Tony Blair's Labour Party took office, the Health Secretary, Alan Milburn, announced that "when there is a limited amount of public-sector capital available, as there is, it's PFI or bust".
"[20] To better promote PFI, the Labour government appointed Malcolm Bates to chair the efforts to review the policy with a number of Arthur Andersen staffers.
These changes meant that the government transferred the responsibility of managing PFI to a corporation closely related with the owners, financiers, consultants, and subcontractors that stood to benefit from this policy.
[25]In an interview in November 2009, Conservative George Osborne, subsequently Chancellor of the Exchequer in the coalition, sought to distance his party from the excesses of PFI by blaming Labour for its misuse.
[30] According to Mark Hellowell from the University of Edinburgh: The truth is the coalition government have made a decision that they want to expand PFI at a time when the value for money credentials of the system have never been weaker.
The government is very concerned to keep the headline rates of deficit and debt down, so it's looking to use an increasingly expensive form of borrowing through an intermediary knowing the investment costs won't immediately show up on their budgets.
[38]: 7 A consultation exercise was subsequently undertaken by the government regarding the terms on which the public sector stake would be managed, aiming for a generally consistent approach across projects but with scope for details to be finalised prior to operation to reflect any project-specific issues.
[43] A January 2018 report by the National Audit Office found that the UK had incurred many billions of pounds in extra costs for no clear benefit through PFIs.
[44][45] In October 2018, the Chancellor, Philip Hammond, announced that the UK Government will no longer use PF2, the current model of Private Finance Initiative, for new infrastructure projects,[46] due to value-for-money considerations and the difficulties caused by the collapse of PFI construction company Carillion.
[130] Jonathan Fielden, chair of the British Medical Association's consultants' committee has said that PFI debts are "distorting clinical priorities" and affecting the treatment given to patients.
Fielden cited the example of University Hospital Coventry where the NHS Trust was forced to borrow money to make the first £54m payment owed to the PFI contractor.
In 2012, seven NHS trusts were unable to meet the repayments for their private finance schemes and were given £1.5 billion in emergency funding, to help them avoid cutting patient services.
"[137]Dr Jonathan Fielden, chair of the British Medical Association's consultants' committee has said that as a result of the high costs of a PFI scheme in Coventry "they are potentially reducing jobs".
[66] In fact by 2005 the hospital trust in Coventry was anticipating a deficit of £13m due to PFI and "drastic measures" were required to plug the gap including shutting one ward, removing eight beds from another, shortening the opening hours of the Surgical Assessment Unit, and the "rationalisation of certain posts" – which meant cutting 116 jobs.
As The Guardian explained "In September 1997 the government declared that these payments would be legally guaranteed: beds, doctors, nurses and managers could be sacrificed, but not the annual donation to the Fat Cats Protection League".
[13] Mark Porter, of the British Medical Association said: "Locking the NHS into long-term contracts with the private sector has made entire local health economies more vulnerable to changing conditions.
"[31] John Appleby, chief economist at the King's Fund health think-tank, said: "It is a bit like taking out a pretty big mortgage in the expectation your income is going to rise, but the NHS is facing a period where that is not going to happen.
The PFI contract bundles the payment to the private sector as a single ('unitary') charge for both the initial capital spend and the ongoing maintenance and operation costs.
An article in the Financial Times recalls the acute embarrassment of the early days of PFI, when investors in projects made millions of pounds from refinancings and it turned out that the taxpayer had no right to any share in the gains ... Investors in one of the early prison projects, for example, made a £14m windfall gain and hugely increased rates of return when they used falling interest rates to refinance.
[153] This means that independent attempts, such as that by the Association for Consultancy and Engineering, to assess PFI data across government departments have been able to find significant variations in the costs to the taxpayer.
The House of Commons Public Accounts Committee criticised HM Revenue and Customs over the PFI STEPS deal to sell about 600 properties to a company called Mapeley, based in the tax haven of Bermuda.
Edward Leigh, then Conservative chair of the Public Accounts Committee which oversees the work of the NAO, said: "By introducing a private finance element to the deal, the MoD managed to turn what should have been a relatively straightforward procurement into a bureaucratic nightmare".
In addition, the complexity of many PFI projects means that governors, teachers and support staff are often asked to "take on trust" assurances about proposals which have important implications for them.
[139] In March 2009, in the face of funding difficulties caused by the 2007–2008 financial crisis, the Treasury established an Infrastructure Finance Unit with a mandate to ensure the continuation of PFI projects.
The committee revealed that British taxpayers are liable for an extra £1bn because the Treasury failed to find alternative ways to fund infrastructure projects during the financial crisis.
The committee "suggests that the government should have temporarily abandoned PFI to directly fund some projects, instead of allowing the banks – many of which were being bailed out with billions of pounds of public money at the time – to increase their charges .
[35] The House of Commons Liaison Committee has said that claims of commercial confidentiality are making it difficult for MPs to scrutinise the growing number of PFI contracts in the UK.
In recent years the Finance Committees of the Scottish Parliament and the National Assembly for Wales have held enquiries into whether PFI represents good value for money.
"[163] In a paper published in the British Medical Journal, a team consisting of two public health specialists and an economist concluded that many PFI appraisals do not correctly calculate the true risks involved.
