MPs conclude PFI funding is currently unsustainable

Government use of the private-finance initiative (PFI) is ‘unsustainable’ in its current form, an influential Commons’ committee reported this week.

Issuing its findings on equity investment in privately financed projects on 2 May, the public accounts committee (PAC) urged the Treasury to address inherent flaws and inflexibility in the PFI model used by central and local government to deliver around 700 schemes over the past 20 years.

Margaret Hodge: ‘The current model of PFI is unsustainable.’

Despite evidence that project investors are making excessively-high returns, the MPs found incentives for the Government to pursue PFI remain at a time of public spending constraint – with talks over a further 30 schemes ongoing.

The MPs suggested that public authorities should be able to share profits where it can be proved investors are securing rewards which are out of line with the risks they carry.

In response Sir Merrick Cockell, chairman of the Local Government Association, said ‘councils wouldn’t hesitate to explore the possibility of reclaiming money that would be better spent on aged care or libraries’ - but added there are practical difficulties in the way of reclaiming money.

Concern was also expressed that authorities have been locked into long-term deals, under which providers typically deliver facilities management and maintenance services for around 30 years, at a time when the public sector’s use of assets was likely to change more quickly.

Chair of the PAC, Margaret Hodge, said: ‘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. Thirty-year contracts are inflexible and don’t allow managers to alter priorities or change services which have become outdated.’