Government has failed to ensure value for money from PFI arrangements and has treated the financing mechanism as the “only game in town”, MPs said today.
The Treasury has assumed tax revenues from PFI arrangements that have not transpired thanks to PFI investors’ off-shore tax havens. Not only did the PAC find evidence of this but it said that the Treasury has neglected to monitor whether taxes are paid. It said alternatives to the standard PFI approach could involve cheaper sources of finance, using selected elements rather than the entire and complex PFI contract, and trialling PFI and non-PFI approaches for similar projects.
“I welcome the recent announcement by the Treasury that it plans to find at least £1.5bn of savings across the operational PFI projects in England,” said PAC chairman Margaret Hodge MP. “But we will want to see clear evidence that real savings have been made, and that they have not been made simply through service cuts and at the expense of service quality.”
The UK has 700 PFI contracts, with a further 61 projects in procurement and many others where PFI is being considered as an option.”
PAC’s key recommendations
- Treasury should issue new guidance setting out a more rigorous method for assessing the value for money of proposed PFI projects by autumn that include: a more transparent and complete comparison of alternative funding; the current high cost of using private finance; a rigorous assessment of the transfer of risk to investors; how substantial long-term financial commitments will be accommodated within the public sector’s need to make spending cuts
- Treasury should measure tax revenues from PFI deals and should ensure that this is taken into account in future assessments of PFI against conventional procurement
- Treasury should define commercial confidentiality and the exceptional circumstances where it applies but otherwise freedom of information should be extended to private companies providing public services
- The Major Projects Authority and the Treasury should identify and publish lessons learned from PFIs to improve the public sector’s commercial skills across all projects and should safeguard those skills through the public sector cuts
- Treasury to provide the committee with an update by November on any potential savings on existing contracts
- Treasury must set out how it will maximise the government’s buying power to improve value for money and how that will work with its policy on localism