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New critique for PFI

A new report by a group of MPs into private finance initiative projects has become the second in a matter of weeks to criticise the state of public sector procurement.

The report entitled ‘Lessons from PFI and other projects’, published by the Committee of Public Accounts, says the public sector is getting a bad deal out of PFI, and that the taxpayer’s position is made worse by “poor transparency of investor and contract information alongside patchy public sector commercial skills”.

The committee has also said that private investors are making excessive profits and using off-shore accounts to avoid tax, and has called for HM Treasury to employ freedom of information powers to investigate.

The report comes just two weeks after the Treasury Select Committee criticised PFI as inefficient and poor value.

The latest research from the House of Commons committee says the “buoyant and profitable market in PFI deals” - where the private sector is invited to design, finance, build and operate a public sector project usually on a contract of 25-30 years - shows that taxpayers could be getting a much better deal from the arrangements.

The committee, which is led by Labour MP Margaret Hodge and tasked with scrutinising public spending, said the UK has 700 PFI contracts, with a further 61 projects in procurement and “many others where PFI is being considered as an option”.

It says the costs and benefits identified in business cases, such as providing hospitals to the NHS, need to be revisited periodically to inform future procurement decisions.

The report says the government has treated PFI as the “only game in town”, but that it has been based on inadequate comparisons with conventional procurement which have not been sufficiently challenged.

Mrs Hodge said:  “While PFI has delivered many new public buildings and services that might not otherwise have been built, it is far from clear that it has provided value for money.”

The committee said it has “seen information which strongly suggests that investors are making excessive profits from selling on shares in PFI projects” and avoiding tax with off-shore arrangements. It has called for the introduction of arrangements for sharing equity gains.

Mrs Hodge added:  “The Treasury assumes tax revenues when assessing the value for money of a PFI project, yet does not monitor whether taxes are paid.

“In our evidence we found that tax revenue is being lost through the use of off-shore arrangements by PFI investors.”

The report says that one of the largest PFI investment funds revealed that 72 per cent of the shareholders of its management company are registered offshore.

The committee did however welcome the recent announcement by the Treasury that it plans to find at least £1.5 billion of savings across current PFI projects in England.