1. UNISON welcomes the opportunity to give evidence to The Economic Affairs Committee of the House of Lords on the Private Finance Initiative (PFI).
2. As the largest public service union in the UK with 1.3 million members, UNISON has a substantial membership in education, local government and health and UNISON members are directly involved with and employed on PFI schemes.
3. UNISON has had serious concerns about PFI since its inception, including the evaluation methodology used for PFI, the impact on public services and the public finances. UNISON has collected evidence and commissioned expert research on PFI, in order to support our case with evidence and clear argument.
4. A key issue for UNISON is how PFI impacts on the workforce and we would like to take this opportunity to raise issues on this to the inquiry, even though it was not one of the questions identified in the call for evidence. PFI is about services and the workforce is therefore central to their operation, and to the quality of the services provided.
5. The government has always been clear that PFI is not just about procuring assets:
"Private firms become long term providers of services rather than simply upfront asset builders, combining the responsibilities of designing, building, financing and operating the assets in order to deliver the services demanded by the private sector"35 (HM Treasury 1997)
6. But this committee is not alone in overlooking workforce issues-a trip to the web sites of the Office of Government Commerce (OGC) or Partnerships for Schools (PfS), for example, will reveal the same omission, with no clear and upfront policy on handling workforce issues in PFI schemes, despite the fact that they provide and oversee procurement advice for major programmes of PFI and other projects.
7. The Treasury has a strong policy on workforce matters in PFI:
"PFI has allowed for considerable innovation in workforce practices, but the value for money that PFI can deliver should not be achieved at the expense of staff terms and conditions. The Government has taken a range of steps to strengthen worker protection and ensure the fair and reasonable treatment of those working under PFI contracts."36 HM Treasury 2003
8. Regrettably, the Treasury has never checked whether their policy is working, nor whether their modifications have indeed meant that "PFI does not come at the expense of the workforce".
9. "Going forward, the Government is also committed to monitoring the implementation and performance of measures taken to avoid new joiners to PFI workforces receiving worse terms and conditions than do transferred staff, as this will be key to establishing future best practice. It is important that the principles behind the code, workforce protection and adequate flexibility to deliver high quality public services, are achieved."37 HM Treasury 2003.
10. A 2004 NAO study38 on staff protections in PPP/PFI deals showed the existence of two tier workforces in PFI. A two tier workforce is where a contractor increases profits by hiring new joiners on lower pay and conditions than staff who transferred to them from a public authority under the TUPE regulations, which protect their terms and conditions at the point of transfer. The study was undertaken in 2004 and preceded the introduction of a range of workforce protections so UNISON would welcome another study that could produce more up to date evidence of what is happening to staff on PPP/PFI projects.
11. In the meantime the workforce in PFI contracts are at risk of a downward spiral of their terms and conditions which inevitably impacts on the quality of the services that they provide.39
Question 1: How should the cost and benefits of Private Finance projects be assessed?
12. It is difficult to assess the costs and benefits of PFI relative to conventional procurement because of the inbuilt bias towards PFI in the evaluation process and general lack of information. UNISON published a powerful critique of the Treasury's methodology for evaluating PFI projects, The Private Finance Initiative: A Policy Built on Sand40 and UNISON's report, Public risk for private gain?41 emphasised the general absence of financial auditing of actual risk transfer absorbed by PFI contracts and the cost that this involved.
13. PFI schemes should be compared with a public sector comparator (PSC) to ascertain value for money. But the methodology currently used is flawed as it is heavily subjective and depends on assumptions that are built into the process, many of which favour PFI. For example. assumptions on time and cost overruns built in to optimism bias calculations and assumptions on taxation. The system is therefore open to manipulation, bearing in mind that there is no alternative to PFI for major investment. Indeed the evidence suggests that many public bodies are compelled to sign up to PFI if they want to undertake large capital projects because of the limited funding options available. In many instances public authorities are incentivised to use PFI. They may get a subsidy (such as PFI credits in English local authorities) or, as in Scotland, the block grant system of funding devolution ( the "Barnett formula") provides a perverse incentive to use PFI so long as it can be kept off balance sheet.
14. UNISON has called on the government to undertake a comparative and independent review of PFI to establish the costs of PFI projects and to ascertain whether they have an effect on the wider economies within which they operate.
15. UNISON remains convinced that the desire to keep capital borrowing off the public sector balance sheet is still a driving force for PFI that takes precedence over the growing evidence of lack of risk transfer and escalating costs. A policy that looks increasingly irrelevant, given the record borrowing that has taken place in order to deal with the banking crisis.
16. At the very least, UNISON would like to see genuine choices of investment models for public infrastructure and the removal of soft services such as cleaning, catering and portering from PFI contracts.
Question 2: Is enough information disclosed on Private Finance projects fully to assess whether the taxpayer is getting value-for-money?
17. UNISON branches and local communities find it very difficult to access information on major PFI projects involving many millions of pounds of public money that impact on their services and jobs. This stifles consultation and debate on key public policy decisions. Even with the Freedom of Information Act vital information is often withheld, citing "commercial confidentiality". PFI derivatives such as LIFT in NHS primary care and Local Education Partnerships in English schools, are one step further removed from communities and the workforce and make meaningful information flows and consultation even more difficult to achieve.
18. The difficulties in accessing relevant information are illustrated by one persistent UNISON branch for whom it took from September 2006 until April 2009 to get hold of a reasonably, redacted version of the Full Business Case (FBC) for their hospital PFI scheme from the Mid Yorkshire Hospital NHS Trust. Furthermore the branch struggled just to get their case prioritised by the Information Commissioner's Office (ICO). They were, not surprisingly, especially interested in information on staffing. Their first complaint to the Information Commissioner was in September 2007 following which they received an extremely redacted copy of the FBC in December 2007 which they referred back to the Commissioner. The Commissioner was unable to allocate a case officer to this complaint but by April 2008 had got the Trust to conduct a review of the application of exemptions to disclosure and an agreement to release "a substantial amount of the previously redacted information". In May the Trust issued two out of a total of 63 documents deemed "commercially confidential"-one relating to the UK Treasury Gilt rate and another to a Trust board meeting of November 2004. It was not until October 2008 that the Commissioner was able to allocate a case officer and a final agreement on the release of a fuller redacted version of the FBC was reached in April 2009. There is still a separate case pending for the release of important financial data.
19. In a recent case, waste company Veolia Environmental Services took out an injunction to prevent Nottinghamshire County Council disclosing details of a £850 million, 26 year waste project which had the effect of also preventing the established public access to the council's annual accounts. The case has now been resolved and will hopefully set a new benchmark for disclosure.
20. UNISON believes that private bodies providing public services, and therefore in receipt of taxpayers money, should be subject to the same scrutiny and accountability checks as public sector bodies. The public has a right to know about the costs and quality of a public service, irrespective of which body is providing it. UNISON is disappointed that a recent government consultation on extending the FOI Act to all bodies undertaking public services made little progress. The government rejected a recommendation from the House of Commons Public Accounts Committee to bring privatised public services within the scope of the Act, after heavy lobbying from the CBI.
21. These projects are of significant public interest, and involve large sums of public money and decisions that will impact on communities for decades to come. UNISON would therefore like the Information Commissioner to take a proactive role in encouraging full disclosure of information on PFI and other major outsourcing projects and to prioritise complaints when this information is not forthcoming and notes that the Scottish Information Commissioner has taken a much stronger line on these issues.
Question 3: How does the performance (eg, cost, delivery dates and service quality) of schools, hospitals, prisons, roads and other projects operated under private finance compare to those which were traditionally procured?
There is a growing body of evidence that PFI is costly, complex and inflexible, and does not provide high quality of services.
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35 HM Treasury 1997, Fiscal Policy: A New Framework For Public Investment.
36 HM Treasury 2003, PFI: Meeting the Investment Challenge.
37 Ibid.
38 NAO 2008, Protecting staff in PPP/PFI deals.
39 UNISON has published studies that demonstrate clearly how competition has reduced the quality of the services. The Treasury concluded that "the evidence on satisfaction with soft services does not demonstrate value for money as consistently as other elements of the framework."
40 UNISON,2005 The Private Finance Initiative: A Policy Built On Sand.
41 UNISON, 2004, Public risk for private gain?