MPs want more profit sharing from PFI

The UK’s public accounts committee, an investigative body made up of cross-party Members of Parliament, has urged government to secure more gains from privately financed infrastructure projects for the taxpayer.

In a recent report focusing on projects in the housing and healthcare sectors, the committee found that procuring authorities are not using their “buying power to negotiate with major PFI contractors and investors to secure a share of efficiency gains for the taxpayer”. PFI stands for private finance initiative, the UK’s standardised procurement process of tendering public works to the private sector.

The report adds that, “in most cases, the private sector is making greater than expected profits without any gain sharing with the public sector”, adding that procuring authorities “accepted that it would be possible to try and negotiate contracts to reduce costs”.

The committee continues: “The bundling together of projects by [infrastructure] investors gives them the prospect of taking added value from economies of scale, with no benefit to the public sector at a time of severely constrained public finances. Central government is currently negotiating with major suppliers to seek better deals from a range of existing contracts. [Procuring authorities] should similarly negotiate with major PFI investors to secure better deals for the taxpayer.”

But Elizabeth Fells, head of public service reform at the Confederation of British Industry (CBI), an industry body, warned that “with the public finances constrained, the role of the private sector in supporting new infrastructure will become even more important. Any moves to challenge existing contracts will undermine private sector confidence, jeopardising future investment in crucial infrastructure projects”.

MPs also concluded that there is “no clear and explicit justification and evaluation for the use of PFI in terms of its value for money” noting that there is “no clear evidence of whether PFI is any better or worse value for money than other procurement routes”.

However, the committee recognises that the previous Labour government “gave the departments no realistic alternatives to PFI as the procurement route to use for these capital programmes”, admitting that “PFI has delivered many new hospitals and homes which might otherwise not have been delivered”. Still, the report urges government to instruct procuring authorities to maximise value for money from any future PFI procurement.

This prompted CBI’s Fells to comment that “government needs a variety of finance options available to it. These should include new methods, such as tax increment funding [allowing councils to borrow against expected increases in businesses’ higher property values to fund infrastructure] and pension fund financing, as well as PFI.”