Bad management of private finance contracts is leading to poor quality assets being handed back to the government, including schools and hospitals, according to parliament’s spending watchdog.
Its report into the use of private finance initiatives (PFI) for infrastructure comes at a time when the government has identified private investment in projects such as power plants and transport outside London as a key part of its growth agenda.
However, the public accounts committee (PAC) is warning that a series of problems with PFI deals could put the government’s ambitions to attract investors for such schemes “in jeopardy”.
Setting out a series of recommendations to ministers, MPs on the committee said that UK infrastructure risked becoming “stony ground” for investors unless major changes were made.
PFI took off under Tony Blair’s government, which saw it as a way of building key public projects without adding to the national debt. However, these deals have long been controversial, and not have always been seen to provide value for money to taxpayers.
More than 650 public sector organisations have their buildings, IT and essential infrastructure managed by a private consortium under a PFI deal, and state bodies are set to pay £136bn in unitary charges for these contracts until 2052-3.
Half of the contracts – covering hospitals, schools and transport – are set to expire during the next decade. The PAC report called on ministers to ensure such contracts were carefully managed so that private sector firms complied with their contractual obligations and “only quality assets are handed back” to government.
Last year a report by the Association of Infrastructure Investors in Public Private Partnerships warned that schools and hospitals that depend on PFI contracts were in danger of “severe disruption” unless they could find a way to cope once those contracts expire.
MPs on the PAC are also calling for a more comprehensive framework for how risk is shared between the public and private sector when they work in partnership, particularly after the high-profile collapse of the outsourcing company Carillion, which halted work on new hospitals in Liverpool and Birmingham.
The government also needs to provide detailed information on the pipeline of future projects in order to attract new investors, according to the PAC, amid a current lack of data about the past performance of projects or when future ones will be delivered.
“Our scrutiny has found a woefully obscured picture for any seeking to invest in big infrastructure projects in the UK, with a corresponding drain of skills overseas,” said Sir Geoffrey Clifton-Brown, chair of the PAC.
“Without a long-term, consistent pipeline giving an idea of what to expect in years to come, UK infrastructure risks becoming stony ground for any investor.”
The PAC is calling on the Treasury to identify which financing models it would support for money for different types of projects, such as energy, transport or communication, to attract investors and drive competition.
A central database covering private finance for infrastructure investment should be published, according to the report, to help the Treasury to deliver value for money, given the huge amounts of money involved in such projects, such as the £14.2bn pledged by the government for the Sizewell C nuclear power station in Suffolk.
