MPs slam PFI as "poor value"

The Private Finance Initiative (PFI) scheme for funding government infrastructure projects including new schools and hospitals has been slammed by MPs as inefficient and poor value for money.

A Treasury select committee report highlighted that PFI, which was widely used under the previous Labour government, was no more efficient than other forms of borrowing and usually led to higher costs in the long run.

The report also warned of “perverse” incentives that allowed PFI debt to stay off official government debt figures and allowed departments to become “addicted” to PFI because initial procurement costs were comparatively low – even though schemes cost more in the long term.

The report found that £1 billion of PFI debt cost the taxpayer the same as £1.7 billion of direct government debt. The report also said that the main advantage purported by PFI – that it transferred risk to the private sector – was an illusion.

Committee chairmam Conservative MP Andrew Tyrie said: “PFI means getting something now and paying later. Any Whitehall department could be excused for becoming addicted to that.

“We can’t carry on as we are. We must first acknowledge we’ve got a problem. This will be tough in the short term but it should benefit the economy and public finances in the longer term.”

Tyrie has urged chancellor George Osborne to call an immediate review of PFI and to bring PFI costs on to the official government debt balance sheet – which could add up to 2-3% to government debt as a proportion of GDP.

According to the independent Office for Budget Responsibility, the taxpayer is liable for approximately £40 billion of PFI projects.