• The use of public private partnerships (PPPs) In Northern Ireland has dramatically increased since the late 1990s. As of March 2008, contracts for 35 PPP projects had been signed, representing private financing of £1.29 billion. A further 13 projects, with a capital value of £1.94 billion, are now being negotiated with private sector bidders and are due to sign before 2012.
• Private finance creates a public debt. The public bodies involved in PPPs have to pay annual payments to the private sector over a long period, often 30 years. The future payments on schemes signed to date amount to some £4.7 billion. As the projects currently in negotiation are signed off, the liabilities accruing to PPP contracts in Northern Ireland will rise to more than £10 billion.
• Different rationales have been used to support PPP in Northern Ireland in the last decade. The first devolved administration regarded PPP as a means of generating "additional" investment. However, this rationale was broadened during direct rule, when PPP (by now the "preferred" method for capital investment) was embraced as part of wider measures to reduce the size of the public sector.
• In fact, neither rationale is valid. The "additionality" of private finance is illusory - an accounting anomaly which distorts financing decisions. Similarly, the notion that PPP can help to rebalance the economy is a misconception. This is a policy that will channel work to large, overseas companies at the expense of domestic providers, curtailing private sector growth.
• In reality, the legitimacy of PPP stands or falls on its cost-efficiency credentials: i.e. whether the policy is better value than the alternatives, such as direct borrowing. The evidence demonstrates that finance costs are higher for the private sector, and this, combined with an excessive rate of return on capital, has led to very high costs for the public authorities involved in contracts.
• These costs are increasing for new schemes due to the credit crunch, which has eliminated bonds - the cheapest source of private finance - and significantly increased the margins on bank finance.
• New accounting regulations will address the anomaly whereby debt raised through a private sector intermediary is not recorded on the public sector's balance sheet. This will remove the central attraction of PPP for the political parties of Northern Ireland. With devolution restored, there is a clear need for a full, independent review of capital investment policy in Northern Ireland.