The Private Finance Initiative : sixth report, together with the proceedings of the Committee, minutes of evidence and appendices / Treasury Committee.

  • Great Britain. Parliament. House of Commons. Treasury Committee.
Date:
1996
Catalogue details

Licence: Open Government Licence

Credit: The Private Finance Initiative : sixth report, together with the proceedings of the Committee, minutes of evidence and appendices / Treasury Committee. Source: Wellcome Collection.

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    departments ‘What are the revenue implications of the PFI contracts they have signed in the year, say, 2005?’, they would not readily be able to give you an answer, and if you asked the Treasury ‘What is the sum total of the PFI commitments in the year 2005?’ they would not readily be able to give you a total, but the information is there and it needs to be codified, organised, and assembled fairly speedily in our view.”*° We share this concern that a major Government policy can be introduced with the potential to involve significant amounts of public expenditure without previously establishing a system of effectively recording and monitoring the liabilities being entered into. Furthermore, it 1s possible that this lack of information could frustrate a linked strand of policy - the reduction of public spending, and future Chancellors might find their policy options limited as a result of today’s lack of control. We would therefore welcome details from the Treasury of the system they will put in place to monitor PFI commitments. VALUE FOR MONEY 30. According to the Treasury, the main benefit of PFI for the public sector is: “more and better projects and better services. These services should also cost less than if provided by traditional public sector means because the private sector achieves efficiencies in delivery by better design and management.”*’ Improvement in value for money is obtained under PFI through “better allocation of risk; better incentives to perform; close integration of service needs with design and construction; a clearer focus of responsibilities of public and private sectors which more clearly reflects the strengths of each; a continuing commercial incentive for efficiency throughout the design, asset creation and operation of the project; and more potential for efficiencies.”** In the following section we review various aspects of how value for money is measured and obtained. 31. The Treasury is clearly convinced of the significant value for money gains available under PFI. In its recent guidance it states “The starting point is a clear presumption that the PFI approach will generally be better than a traditional procurement; the better management inherent in a PFI project will give better value for money. As a matter of Government policy, public bodies should always consider private finance options unless it is clear that transfer of project control and risk to the private sector is not feasible.”*? This statement is interesting, for if the benefits of PFI are so apparent, it is difficult to explain the slow progress of the Initiative so far or why there is a need for a “clear presumption” in favour of PFI as a means of procurement. Our specialist adviser drew attention to the shift in belief at the Treasury in the usefulness of private finance; in 1993, a former official recalled “The Treasury’s objective then [in 1983]... was to stop such schemes. The notorious Ryrie rules were a tease — the conditions they set for private financial projects were not intended to be met in practice.”°° The Treasury blamed inertia in departments for the slow progress of PFI. “Sitting where I sit one gets the sense that there are plenty of people in departments who are busy trying to find ways to let the traditional way win rather than the new way because doing things in a new way is risky and they would much prefer to stick with tried and tested methods.”°' The Treasury, however, believes that this inertia in departments will be overcome. As we have noted above, Table 6.4 of the 1996-97 Red Book shows that capital expenditure under the PFI in 1993-94 and 1994-95 was £0.3 billion per year. In 1995-96 this is expected to double to £0.6 billion, leaping to £1.9 billion in 1996-97 and totalling £2.8 billion in 1998-99. © QQ109-110. 47 POPB, para.1.8. “8 POPB, para.1.9. *? POPB, para.3.30. °° Appendix 17, p.47. 1 Q41t. °° ESBR 1996-97, p.120, Table 6.4.