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3. Witnesses have told us that PFI has enabled a major updating of the NHS estate that would not have been possible otherwise. Do you agree with this view?

One of the early attractions of PFI was that it allowed governments to evade their own borrowing rules because PFI projects did not necessarily count as public debt in the same way as government borrowing. Investment could therefore be undertaken without threatening spending limits. This was politically attractive but also led to the adoption of PFI in circumstances where a conventional project would have been cheaper (Gosling, 2004).

Nevertheless, PFI is public borrowing even if it is not recorded as such. The public sector must commit to repaying debt to private consortia in the same way as it would when settling any other debt (Heald and Geaughan, 1997). Therefore the perception that PPP/PFI generates additional resources over and above public investment is mistaken. In fact most authorities now acknowledge that PFI does not benefit the economy as whole but simply allows governments to manipulate their reported public borrowing figures. As noted by the World Bank (2007), lower public debt associated with the use of private finance is an artefact of governments' standards for financial reporting. Unitary charges do not depend on the government's subsequent demand for the services: so long as the private partner has properly constructed and maintained the facilities, the government must pay.

While the government's obligations to make these payments may not always entail an accounting liability, they do entail an economic liability: all the debt will be repaid by the public sector along with interest and returns for investors. As Heald (1997) has noted, the impact of PFI is to alter the timing of capital and interest payments, not their magnitude.