Farewell to socialist PFI – The Property Chronicle
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Farewell to socialist PFI The failure of PFI is an indictment of government provision, not of markets

The Economist

Philip Hammond’s decision in last month’s budget to abandon the Private Finance Initiative has been regarded by some commentators as the adoption of a “Corbyn-lite” policy by the Conservatives. Such a claim misses the point. After all, PFI has been used to fund a huge expansion in government spending whilst pushing the costs, in an opaque way, onto the next generation. It never was a pro-market policy.

A typical PFI project involves the private sector paying up front for the creation of an asset such as a school, a hospital or a road. The state then pays a private company for the use of the asset and also, especially in the case of hospitals and roads, pays the company for the provision of services over a long period of time.

In total, there are £60bn worth of assets used for government services financed by the PFI scheme with expected total future payments by the government running to about £200bn by the 2040s.

In the best-case scenario, the government is able to pay for the services as it uses them over the life of the asset and the private sector takes the risk of things going wrong. Private sector risk management techniques can be used to reduce cost over-runs.

It is true, of course, that the private sector has to borrow at higher interest rates than the government to finance the up-front spending. But, then the taxpayer does not have to bear the risks. We only have to think of projects such as the Humber Bridge, HS2 and the nuclear power programme to realise how the government can easily get its fingers burned when it tries to manage long-term project risk itself.

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