B.  Is PFI capital expenditure additional or substitutional?

According to the 2001 Pre-Budget Report, public sector capital expenditure is projected to rise from £19.0bn in 2000/01 to £33.2bn in 2003/04. As a proportion of GDP, public sector capital expenditure will rise from 2.0% of GDP to 3.0% over this period. It is expected that the rise in public sector capital expenditure will be supplemented by capital expenditure under the PFI, raising total publicly sponsored capital expenditure from £22.9bn in 2000/01 to £35.6bn in 2003/04.   The figures are set out in table 3.

Table 3: Public sector capital expenditure

 

Outturn 

 

 

Projections

 

 

2000/01

 

2001/02

2002/03

2003/04

Total public sector capital expenditurea
(As % of GDP)

19.0

2.0%

 

26.0

2.6%

28.8

2.8%

33.2

 

Estimated capital expenditure under PFI 
(As % of total public capital expenditure)

3.9
17.0%

 

3.5
11.9%

3.1
9.7%

2.4
6.7%

Total publicly sponsored capital expenditure
(As % of GDP)

22.9
2.4%

 

29.5
3.0%

31.9
3.0%

35.6
3.2%

Memo

 

 

 

 

 

Public sector gross investment 
less depreciation
Public sector net investment
(As % of GDP)

19.0
-12.7
6.3
0.7%

 

26.0 
-13.2
12.8
1.3%

28.8
-14.0
14.8
1.4%

33.2 -14.6 18.6 1.7%

GDP

955

 

998

1,046

1,099

Note: a Net of asset sales.

Sources: Derived from HM Treasury, Pre-Budget Report , Cm 5318, November 2001 and FSBR 2001 , HC 279, 2000/01

These figures suggest that PFI capital spending may be additional to public sector capital expenditure as both public sector capital expenditure and total publicly sponsored capital expenditure are set to rise over the period. In reality it is difficult to demonstrate that something is additional to what would have happened anyway. As a first round effect, some PFI capital expenditure is clearly substitutional as some public capital spending is replaced. This was explained in evidence to the Treasury Committee during its 1996 enquiry into the PFI when an official explained the difficulty but stated that in the current spending round:

[…] there has been a deletion against previous capital plans of certain sums which the Government have planned to spend because the PFI can be seen to provide an alternative way of procuring those services. 27

Investment through the PFI may be additional when any second round effects are taken into account. For example, public funds that are released from a department's capital programme, by an injection of PFI investment, can be used elsewhere to create additional activity. This could be additional spending compared with what would have been the case in the absence of the PFI. A second way in which PFI could provide additional spending is through efficiency savings, which again would release public funds for other purposes.




____________________________________________________________________

27  Treasury Committee, The Private Finance Initiative, 1 April 1996, HC 146 1995-96