Institute for Public Policy Research



No clear cost advantages of PFI in schools - ippr

There is no clear evidence that the PFI offers any clear cost advantages over alternative options in the building and maintaining of new schools warned the ippr today (Tuesday) following a seminar on the issue attended by senior figures from National and Scottish auditing bodies, Government, the private sector and Trade Unions.

Evidence from a recent Audit Scotland inquiry into the PFI in schools, presented to the seminar, reaffirmed the findings of the ippr’s own report “Building Better Partnerships” (June 2001) that there is little justification on value for money grounds for using the PFI in schools. In addition, the seminar heard, there are dangers that the benchmark used to judge whether PFI deals offer value for money is falling into disrepute.

ippr Research Fellow on Public Private Partnerships Paul Maltby said

“Although there is scope for using the PFI in constructing and maintaining new buildings, the evidence of value for money in schools PFIs is weak.

“Where the evidence for value for money is weak the government should consider other options, including PPPs where government rather than the private sector provides the finance for the deal. We need to end the monoculture of the PFI.

“There are also real doubts about the integrity of the notional publicly financed scheme that the PFI deals are judged against. Because these alternative projects are unlikely to be given access to public finance, the public sector has a clear incentive to ensure that the figures come out in favour of the PFI.”

Notes to Editors:

• The Private Finance Initiative is used to build or maintain physical assets, such as school and hospital buildings, roads, and prisons. The PFI also provides some services operated through these assets. The principle behind the PFI is that the public sector decides on the outputs or outcomes that need to be delivered, and the private partner Designs, Builds, Finances, and Operates the asset over, typically, a 30 year period. The public sector pays an annual charge to the private sector which varies according to service quality achieved.

• The Government has previously backed the PFI because it offered the prospect of “extra” investment. The ippr demonstrated that these funding considerations are a red herring, as all money invested by the private sector still has to be paid back by the public sector. Although these “off-balance sheet” considerations are still a major driver behind the PFI, the Government has accepted the ippr’s arguments and (usually) no longer uses this as a justification for the PFI. Instead the PFI is justified on value for money grounds.

• The Audit Scotland report “Taking the Initiative: using PFI contracts to renew council schools” states that “funding considerations and a presumption of better value for money have so far driven PFI”. It states that in fact any “cost advantage was narrow”. This was despite councils having managing the PFI process well and the PFI offering benefits such as clearer specification of service requirements and improved control over construction costs and timescales. Copies can be downloaded from audit-.uk/search/ndx/02ar03ac.htm

• Alternatives to the PFI might be more appropriate when building new schools. For example, financing costs could be reduced if the Government provided the finance and the private sector simply designed, built, and operated the new asset.

• The PFI has brought benefits. It has led to a more intelligent procurement regime and some high quality new facilities. It has helped draw attention to sloppy public procurement, which too often in the past resulted in the public sector digging deeper into its pockets to bale out poor quality private sector work. The PFI has also highlighted the importance of diversity in the ways in which public services are provided and projects are procured, which can help raise standards and foster innovation.

• For more information on the PFI see the ippr factsheet, available from p.maltby@.uk

Contacts:

Media enquiries:

Philip Taylor, Senior Media Officer 020 7470 6120 / 07753 719 289 / p.taylor@.uk

Beatrice Stern, Media Officer 020 7470 6125 / 07971 851 145 / b.stern@.uk

Other enquiries:

Paul Maltby, Research Fellow on Public Private Partnerships 020 7470 0022 / 07932 672 715 / p.maltby@.uk

All ippr news releases can be found at .uk

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date: Tuesday 23 July

embargo: immediate

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