The use of PFI peaked when Tony Blair was in power, with 67 projects being signed off, or reaching “financial completion”, in 2000. Those projects were worth £4.6bn. While in opposition, Osborne described the PFI as a “discredited” model, while Cable said it was “a dishonest system of accounting, designed to hide taxpayers’ liabilities”.
George Osborne, the chancellor, is pressing ahead with private finance initiative (PFI) projects on a multibillion-pound scale despite having dismissed the infrastructure funding mechanism as “discredited” when he was in opposition, research has revealed. A report on Channel 4 News shows 61 PFI projects, worth a total of £6.9bn, have been taken forward since the general election. This is despite claims that private sector borrowing costs currently make PFI particularly poor value for money.
Of the 61 projects being negotiated, 39 are due to be signed off this year, against 32 in 2008 and 38 in 2009, when Gordon Brown was prime minister. Although the Treasury claims that the new PFI contracts will be better value for money than some of the old ones, the figures will reignite the long-standing controversy about the merits of paying the private sector to take charge of building and maintenance projects that used to be managed by government.
The Labour government, which massively expanded the use of PFI after it was developed by the last Tory government, defended it on the grounds that public sector procurement schemes often came in late and over budget and that, under PFI, the costs associated with these risks were transferred to the private sector. But, in opposition, Osborne and his Lib Dem counterpart, Vince Cable, complained that PFI was poor value for the taxpayer.
Mark Hellowell, a PFI specialist at the University of Edinburgh, told Channel 4 News that the large gap between the cost of private sector borrowing and the cost of public sector borrowing meant that PFI now represented particularly poor value for money. “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,” he said. “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.”
In response to the Channel 4 News findings, to be broadcast at 7pm tonight, the Treasury said that PFI was only one method used to finance infrastructure projects and that schemes had to be “good value for money” to get approval. “There is clear evidence of excesses in some of the older PFI contracts,” a Treasury spokesman said. “We are determined to save money where we can, which is why we are running a savings pilot at Queen’s hospital, Romford. The PFI contract is being examined to identify ways of reducing ongoing costs in this contract. Lessons learned will be used to drive savings across the full portfolio of PFI contracts.”
Andrew Sparrow, the Guardian