Before the late 1980s, increased PFI spending occurred alongside planned falls in public sector capital spending, leading to suggestions that some public sector investment was being displaced by PFI spending.24 By retiring the Ryrie Rules in 1989 it seemed that the Treasury was introducing an 'additionality' principle into public sector projects (funding from the private sector should be additional to public sector funding and not instead of it). The new policy was clarified further in the 1990 Green Paper New Roads by New Means:
There has been much misunderstanding about additionality. Many have claimed that privately funded schemes must be additional to those funded by the Exchequer if private finance is to attract the construction industry […].
The private financing of a scheme already in the road programme, and for which public expenditure resources have been allocated, will not free that public expenditure for other projects. For these reasons the Government, in roads as in other fields (such as housing), has to take account of the provision being made by the private sector in considering the size of its public sector programme. But it is not practical - the timescales are wrong - in the great majority of cases to decide whether individual schemes are additional or not. The Government therefore gives the assurance that it will not subtract privately financed roads from public sector provision on a scheme-by-scheme basis. The Government believes that in practice private sector schemes will provide the opportunity for more roads than would otherwise have been built. 25
The 1990 Transport Select Committee Report Roads for the Future commented on the additionality principle and the retirement of the Ryrie Rules:
Additionality is a term that refers to the issue of whether attracting private sector finance will lead to an addition to the roads programme, or displace public sector expenditure, with little or no net addition.
Our witnesses all welcomed the recent retirement by the Government of the Ryrie Rules. These were interpreted in such a way as to limit the conditions under which privately financed schemes would be allowed by the Treasury. In the Green Paper the Government "gives the assurance that it will not subtract privately financed roads from public sector provision on a scheme-by-scheme basis. The Government believes that in practice private sector schemes will provide the opportunity for more roads than would otherwise have been built.'' We welcome this clarification.
But the same paragraph creates ambiguity in the Government's position: "But the annual level of expenditure on the roads programme is determined by the Government in the light of the economy generally and the needs of that programme; a different method of financing it does not make more resources available ... The Government ... has to take account of the provision being made by the private sector in considering the size of its public sector programme." Will private sector funding be allowed to lead to a net increase in the long run, or is the spirit of the Ryrie Rules still in evidence?26
The Transport Committee's report highlighted an ambiguity in the Government's position as set out in the above extract from the Green Paper suggesting that the additionality principle would be applied only to individual schemes. For example, a contribution from the private sector to an individual transport project would not displace public sector funding for that particular transport project but might be subtracted from total public expenditure on transport.
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24 According to the 1995 Red Book, the government's net capital spending programme over the planning period 1995-96 to 1998-99 public sector capital expenditure was set to fall by £2.5 billion.
25 Department of Transport, New Roads by New Means, Cm 698, 1990
26 Transport Select Committee, Roads for the Future, 1 February 1990, HC 198-I 1989-90, para 154-156.