The rationale for Using PFI

1.9  The Department developed its rationale for using PFI in housing over time. PFI has developed to enable the Department to achieve its policy objectives, for example, providing homes for the elderly and people with special needs and for delivering housing as part of large-scale regeneration projects. See case study 6 (case studies summary report at www.nao.org.uk/pfi-housing-2010) for an example of an early regeneration PFI project in Manchester.

1.10  Since the programme launch developments have been informed by the experience of local authorities and providers but the Department has not conducted any formal analysis to underpin this. The Department has assessed some elements of the programme; it has not, however, made an overall assessment of the programme's value in the context of wider housing needs and available funding routes. The Department will examine in the 2010 Comprehensive Spending Review the value for money framework for PFI housing in addressing housing investment needs.

1.11  The choice of delivery route is a local decision. The Department nevertheless has to consider national targets, its policy objectives and ensuring cost-effective service delivery when providing PFI funding to devolved organisations. The Treasury is responsible for allocating PFI funding across government. The Department told us that it linked PFI funding bids and allocations to the achievement of its strategic targets and assessed the potential numbers of housing units that might be delivered for the 2007 Comprehensive Spending Review, but we were unable to identify a target for PFI's contribution to overall housing delivery targets, although the Department expects the first five rounds of PFI to deliver around 28,000 homes (Figure 4 overleaf).

1.12  In our 2009 paper Private Finance Projects7 we highlighted that public authorities across PFI sectors often have no alternative source of funding for projects and feel pressured to use PFI because its treatment in financial accounts and budgets makes it seem more affordable from a local perspective (a paper on the accounting treatment for PFI housing projects can be found at www.nao.org.uk/pfi-housing-2010). In the housing sector local authorities gave their main reasons for using PFI as that it represented additional funding and that the amount per unit they could access was greater than through other funding routes. They frequently cited PFI as the only realistic route for securing the funding needed for particular levels of investment or types of development, for example:

•  PFI is well-suited to and the easiest way to secure significant central funding for large-scale regeneration projects which require long-term commitment and partnership working.

•  PFI is perceived to be the only option for procuring housing with a substantial social care element as grants for new housing do not provide the level of funding these require.

•  Tenants and councillors often oppose a particular route for achieving Decent Homes, meaning that in some cases local authorities have found that PFI is their only realistic option, although in other cases tenants have also opposed PFI.

NOTES

1  In addition these projects include demolishing 5,713 units of which 816 have been completed.

2  Includes units created as part of PFI developments for social rent or market sale, but not directly funded through central government PFI funding.

Source: The Department for Communities and Local Government

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7  Private Finance Projects: A paper for the Lords Economic Affairs Committee, National Audit Office, October 2009.