Proceeds gained by the public sector from Private Finance Initiatives have failed to meet expectations, a recent report by the Committee of Public Accounts has found.
Privately-financed government projects are often re-financed at a later stage because they pose less risk as they mature, therefore allowing better terms to be obtained. The private sector is expected, but not required, to share with the public sector any profit it makes from such debt re-financing.
Back in 2003, the Office of Government Commerce said the public coffers should receive around £175–£200 million from voluntary sharing arrangements on early PFI deals but, up to the end of last year, the government had secured the right to gains of just £93 million, the PAC notes.
“Proceeds gained by the public sector from PFI debt refinancing under the voluntary code…are currently well short of expectations,” said Edward Leigh MP, Chairman of PAC. “Staff negotiating the fine print of refinancing clauses in contracts, where the risks to the public sector can be high, must be trained so that they are not outwitted by their commercially-sophisticated private sector counterparts.”
Furthermore, he points out, “there is no requirement for the gains made by investors through selling on their shares in PFI projects to be shared with the government. The Treasury must keep the working of the PFI equity market under close scrutiny to make sure the public interest is not being compromised.”
Dr Jonathan Fielden, Chairman of the British Medical Association’s Consultants’ Committee, said that the PAC’s report confirmed the BMA’s stance that “PFI is an expensive way of borrowing money which stores up debts for the future and drains funds away from the NHS into the pockets of the private investors.”
“It is appalling that the government let these negotiations go ahead allowing the private sector to fleece the NHS." Fielden went on to stress that the BMA will be urging the new cabinet to move away from “wasting large sums of money in private sector deals which have been shown to offer poor value and can leave hospitals heavily in debt for decades.”
Debate rumbles on
According to the Department of Health, PFIs provide a way of funding major capital investments “without immediate recourse to the public purse.” But there are many critics of the system, such as trade union UNISON, which is running the Positively Public campaign to keep public services public. It claims that years of privatisation and under-funding have left many areas of public provision in a poor state.
“In England of the 28 NHS hospitals with ‘major’ PFI schemes in operation, half recorded a deficit in 2005-06, compared to the average of less than 30% across all NHS hospitals,” a spokesperon for UNISON told PharmaTimes UK News.
“Already the extra cost of PFI for the first wave of 18 signed hospitals is almost half a billion pounds every year. The fall out for some hospitals has been devastating creating massive deficits causing widespread problems.”