 PFI: Getting the Bill on the Fiscal Credit CardNo 42, National Institute of Economic and Social Research (NIESR) Policy Papers from National Institute of Economic and Social Research Abstract: For over 20 years, successive UK governments used the Private Finance Initiative (PFI) – a form of a Public Private Partnership (PPP) – to use the private sector to finance and deliver public infrastructure projects. This model allowed for the payments of these projects to be repaid over decades and were often considered off–balance sheet, meaning they were not included in public debt figures and so not subject to spending rules. Despite delivering over £80 billion worth of public assets, the model was retired in 2018 after becoming synonymous with high costs and inflexible contracts and due to the 'fiscal risks' it posed the public sector. While many consider the PFI experiment to be a failure, the new government may look to reintroduce a new version to finance its 'decade of national renewal', given the updated spending rules still do not leave sufficient headroom to finance all this expansion through conventional fiscal policy. However, to do so it will need to learn from the lessons of the past, which will remain challenging given the lack of institutional knowledge over the use and impact of PFI; this was itself one of the contributing factors to its retirement. This report therefore explores the use and impact of PFI, to fill these knowledge gaps and to arrive at a more informed view over whether and how it could be revived. To do so, we first use the existing – albeit limited – data to understand the scale of PFI, finding that PFI repayments are on average 3.3 times larger than the value of the asset they built. While these official sources provide some insight into whether PFI offers value–for–money, we need further data to gain a clearer picture, such as what proportion of PFI payments pay for the interest costs of each contract or simply the size of each project, such as which schools or hospitals it covers. This information is only held at the local level and is often not known by central government themselves. To overcome these data gaps, we employ freedom of information requests to all local authorities in England to identify which schools were built under PFI. We identify nearly 1,000 PFI schools and find them to be on average financially worse off than non–PFI schools after controlling for key characteristics. We then collate financial data from all local authority's annual accounts to understand the components of PFI repayments, finding over £13.5 billion is spent at the local level on PFI repayments, of which 31 per cent pays for interest costs. We then explore the profit margins made by PFI companies by analysing all accounts registered at Companies House, finding over £1 billion has been made in pre–tax profits by just a handful of companies, often registered in Guernsey and Jersey. This report finishes with a discussion that uses the findings of this work and other research reports to arrive at a judgment over whether and how PFI could be reintroduced, concluding that the incentive of 'off balance sheet' reporting created an overbearing political incentive that meant the negative side effects of the model became a central attribute. While we do not recommend its reintroduction with this feature still in place, we hope the findings generated can override a lack of centralised information and provide policymakers with a diagnosis of the failures of PFI. Date: 2025-01 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrp:42 Access Statistics for this paper More papers in National Institute of Economic and Social Research (NIESR) Policy Papers from National Institute of Economic and Social Research 2 Dean Trench Street Smith Square London SW1P 3HE. Contact information at EDIRC. |
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