3.2 The government's concerns with PFI, which included the model being "too costly, inflexible and opaque",57 prompted the Chancellor of the Exchequer and HM Treasury officials to consider ending its future use.58 However instead, in December 2011, HM Treasury launched a call for evidence regarding its reform. HM Treasury did not analyse the PFI model or collect any data to determine its cost and benefits. There was also no formal business case that set out the reasons why the model should be reformed. The factors that contributed to government's decision to launch the call for evidence were outlined in ministerial submissions and included:
• Higher private financing costs
In the aftermath of the 2008 financial crisis, the availability of long-term private finance from commercial banks reduced. Where it was available it was expensive, making PFI's value-for-money (VfM) case more difficult to justify.
• Continued criticism of the PFI model
PFI was criticised in the media and by Parliament including by the Committee of Public Accounts and the Treasury Committee, which both published reports in 2011.
• Addressing uncertainty in the PFI market
In the 2010 Spending Review the coalition government reviewed investment decisions and cancelled some proposed PFI projects. While there was still investor interest in PFI projects, the lack of announced projects created market uncertainty between 2010 and 2011. Reforming the PFI model was seen as a way of addressing this uncertainty.
3.3 The objective of the PFI reform was to create a model which was less expensive, provided access to a wider range of financing sources, such as pension funds, allowed for greater flexibility, cheaper and accelerated procurement and greater financial transparency. The call for evidence ran from December 2011 to February 2012 and received 155 respondents ranging from industry representatives to local councils. The only government department to formally respond was the Department for Education; however, HM Treasury was unable to provide us with this evidence. The Department of Health did provide a paper to HM Treasury outlining its views on PFI which was not published.
3.4 In 2012, HM Treasury considered and rejected the option of bringing all historic PFI project debt onto the government's balance sheet and including PFI investment in departmental capital budgets. HM Treasury papers note that the Chancellor was initially inclined to make this change. However, this option was eventually rejected, in part because of the perceived risk that the UK's credit rating would be downgraded.59 The UK has been one of the most common users of off-balance sheet Public Private Partnerships (PPPs), such as PFI and PF2, across Europe. UK off-balance sheet PPPs represent 1.7% of GDP, the third-highest in Europe and the highest among the European economies in the G7 (Figure 13). HM Treasury wanted to ensure that PF2 continued to provide an off-balance sheet investment option.
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57 Hansard HC, 15 November 2011, vol. 535.
58 HM Treasury, Ministerial Submission: PFI Reform, 21 May 2012 (unpublished).
59 At the time of the PFI reform, the UK held the top credit rating from the major rating agencies (Moody's, S&P and Fitch). However, in 2013 Moody's and Fitch downgraded the UK and in 2016 so did S&P.