PFI is dead, and the UK government has killed it

Whisper it softly, lest the British government accuse you of describing something it hasn’t done. But they have. Silently, imperceptibly, and probably unconsciously, they have killed off the private finance initiative – the name commonly applied in this country to public-private partnership infrastructure projects.

When the current coalition government came to power four years ago, it did so making all sorts of noises about PFI, as carried out by the previous Labour government, being a waste of money because of the way the public sector had to repay the private sector’s investment costs, their operation and maintenance costs, and ensure they made a profit. Chancellor George Osborne called it “the discredited PFI model”.

Then, after nearly two and a half years of uncertainty, the government unveiled ‘PF2’, essentially a revised framework of standard practices for procuring PPP projects, which was meant to make them more transparent and accountable, and better value for money. The implication was that the UK, which had some 717 projects operating under the PFI banner in 2012, all procured over the past 20 years, was going to continue doing PFI, under a different name and with a few tweaks. That has not materialised.

PF2 was cooked up by the Treasury, but the Treasury doesn’t conceive infrastructure projects: central government departments and local authorities do that, taking Treasury guidelines into account. And since PF2 appeared in December 2012, they have been reluctant to draw up projects under PF2.

I can identify a total of seven projects that have actually been launched under PF2 – two hospitals and five batches of new schools under the coalition’s Priority Schools Building Programme, a key education policy. But the schools represent only £700 million of the entire £2.4 billion programme; the rest is to be publicly funded. And the second, £2 billion phase of PSBP, announced this month, shuns private finance altogether, suggesting that the Department for Education’s gone off it.

When you consider just how important schools and hospitals were to the previous Labour government, and how important PFI was to delivering new ones (284 of those 717 PFI projects were under the health and education departments) that’s quite eye-opening. Look beyond health and education, and the cupboard is even more bare.

Roads? Nope, nothing. Government has allocated funding for the Highways Agency up to 2021, and indicated that the capital investment will be funded from capital spend, not PF2. Plans to secure private investment in roads have come to nothing.

Rail? Forget it. HS2 will be publicly funded and the government has quietly announced that Network Rail’s infrastructure projects will be financed by government debt in future, after NR was reclassified as a public sector body. No PF2 on the railways.

Waste processing? PFI funding for several waste projects was scrapped by this government, and it’s been blamed for causing the death of a further waste PFI in Norfolk. For the future, it’s adopting a wait-and-see approach to waste processing needs, and didn’t announce any new projects in its big infrastructure announcement last year.

Water? Nah, that’s the private sector (and bill payer)’s problem. Defence? Flood defence? Government buildings? Libraries? Nope, no new projects and no sign that any will appear.

Ironically, the places where PFI-type projects are showing signs of life is in the devolved administrations that have previously taken a quasi-socialist disapproval to it. The Welsh government is looking to private finance for a new road upgrade and cancer centre, and the Scottish government will press on with its own ‘non-profit distributing model’ for an infrastructure pipeline pre-announced in April.

But the Westminster government isn’t interested any more. And that is deeply significant, because since PFI was announced in 1992, the UK’s approach to public-private partnerships has been imitated all over the world – from the United States to Vietnam, from Peru to Finland, often with the help of UK government officials, Treasury-drafted how-to guides and UK foreign aid cash to fund training of staff and drawing up of plans. Now, the crucible of PPPs has turned its back on them. And the rest of the world, which is in various stages of getting used to the PPP model, may well ask: hang on, is this all it’s cracked up to be?

I can think of several reasons why this has happened, but this blogpost is long enough already so will save it for a future one.


About René Lavanchy

You can contact me at rene dot lavanchy at googlemail dot com.
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