Call for 'radical' rethink of PFI
An influential committee of MPs has demanded a "radical" rethink of the Government's Private Finance Initiative, branding the model for attracting private cash into public sector projects expensive and unsustainable.
Some 700 projects have been delivered under PFI since its introduction 20 years ago, and the taxpayer is committed to spending of around £200 billion in contracts covering as much as 30 years.
But the Commons Public Accounts Committee (PAC) warned that, in too many cases, investors have made "eye-wateringly high" profits while taxpayers are trapped in expensive and inflexible contracts.
And it said that the contracts - which require fixed payments every year - are forcing public sector bodies such as NHS trusts to make deeper cuts to services during the current period of austerity.
The Treasury announced in December that it would carry out a "fundamental reassessment" of PFI in order to develop a new delivery model that draws on private sector innovation at a lower cost to the taxpayer.
In its report, the committee urged the Treasury to use the ongoing review of PFI to produce a "qualitatively different policy" which reflects the true level of risk taken on by private companies.
Under the current set-up, investors have made annual returns as high as 60% by selling their shares in PFI projects, and there is evidence of "excess profits" being built into the initial pricing of contracts, said the report.
NHS trusts in particular were finding it difficult to meet their liabilities. The report cited the example of the Queen Alexandra Hospital in Portsmouth, where the trust cut 700 jobs and closed 100 beds in an effort to manage annual running costs of £40 million.
PAC chairwoman Margaret Hodge said: "When a public authority chooses to fund a project using private finance it must be able to demonstrate that this was the best way to deliver real value for money for the taxpayer, not just a way to keep the project off the balance sheet.
"For too long, public sector authorities have treated 30-year PFI contracts as the only game in town. This has to end. The current model of PFI is unsustainable."