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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    5. The Health Secretary, who as Financial Secretary was responsible for the PFI, told us “it 1s additional money which in the Health Service is allowing us to substitute what were previously publicly funded capital programmes for quite publicly funded revenue programmes.”'° A Treasury official said that in the early days of PFI it was pretty clear to me that the projects that were going forward were additional in some sense. When something is established, it is much harder to say whether it is additional because it is very speculative to know what would have happened if it had not been there.”!! The Financial Secretary said that “it is additional at the time it occurs because clearly you are seeing private funding coming in to help the Government procure services...the additionality is the arrival of the private project with its capital to enable that particular project to take place... in the current spending round... there has been a deletion against previous capital plans of certain sums which the Government have planned to spend because the Private Finance Initiative can be seen to provide an alternative way of procuring those services.”'* Witnesses stressed that the value-for-money gains obtained through the PFI had, in fact, led to an ability to increase expenditure in other areas; in other words, the PFI, although substitutional in the sense that it allowed orthodox expenditure to be cut, is additional in the sense that it effectively permits additional spending. 6. If the Government is increasingly prepared to view PFI expenditure as substitutional, and to cut orthodox public expenditure, it is largely in anticipation of a rise in PFI spending rather than in response to it. In our previous Reports which have commented on the Government’s PFI projections, we have expressed scepticism as to their rapid rise. PFI spending, which has slowly risen from £300 million in 1993-94 to an estimated outturn of £600 million in 1995-96, is projected to treble in 1996-97 to £1.9 billion, and to continue to rise to £2.6 billion in 1997-98.'* Some of this money is now agreed, but the Government’s projections are, at the very least, optimistic. If there is a serious shortfall in the PFI projections, it will be difficult to provide money from public capital budgets to fill the gap. 7. In our: view, the Private Finance Initiative is now being treated by the Government as substitutional. It is enabling the Government to cut capital budgets in future plans. We are concerned that, if the PFI projections are met or exceeded and overall capital budgets not diminished, they may still not have an equivalent effect. In this Report, we address concerns that the PFI makes the long-term planning of infrastructure more difficult. It is arguable that the PFI hands over a considerable number of capital projects to bodies whose main concern is the profitability of the facility. If the need for a facility, and its probable profitability, do not coincide, the Government will need to take steps to ensure that services continue to be planned and provided. It would be unacceptable if the Government’s planning for the future provision of roads or hospitals began to be driven by the shorter-term perspectives of private bidders. The Committee would welcome therefore the Treasury’s views as to whether the prioritisation of projects should be the responsibility of Government and Parliament, or those seeking to provide projects on a commercial basis. 8. There is potential for value-for-money gains to be made through the PFI, although we think that the sources of these gains are not quite clear. Moreover, we think that, for confidence in the policy to be gained by bidders, Parliament and the public, it needs to be made more transparent, and the savings to be made through the greater efficiency of the private sector openly demonstrated. One of our witnesses thought that “the cost of doing that [refurbishing and renewing the social infrastructure] is beyond the public sector’s appetite for raising cash with which to do it. So as a society I believe we have to seek to tap other sources of finance.”'> The PFI could become a useful and effective way in which to increase investment. 10 QS. '! Q370. 12 9434, 13 See, eg, Q7 and Q379. '4 ESBR 1996-97, Table 6.4. 15 Q194.