Quantifying the benefits of using PFI

4. It costs more for public bodies to raise finance through PFI than through conventional procurement.5 The cost of private sector borrowing can be as much as 2% to 3.75% more expensive than the cost of government borrowing.6 To represent value for money for the taxpayer, the benefits of using the PFI model must be greater than the higher financing costs.7 The Treasury told us that the PFI model provides a range of benefits for the public sector, including greater certainty over construction costs, improved operational efficiency,8 and well-maintained, higher quality assets which are usually returned to public bodies at the end of the contract period.9 These benefits are also achievable through methods other than PFI-for example, fixed contracts have been used to reduce cost overruns in publicly- financed projects.10 The Treasury told us that the delivery of more than 700 projects was the main benefit of the model, and that using PFI had resulted in more schools, hospitals and public infrastructure. It told us that another benefit was that these projects were being maintained using Special Purpose Vehicles (SPVs), which it asserted meant they were being maintained to a higher standard compared to the backlog of maintenance work often found in publicly funded projects.11

5. Despite these assertions, after more than 25 years since the first PFI contracts, the Treasury has not attempted to quantify the benefits of using PFI.12 This is despite the Treasury telling the previous Committee in 2011 that it would introduce benefits realisation assessment into its value for money guidance, for PFI projects that are underway.13 The Treasury recognised that PFI projects have a "mixed record" of success but told us that ministers had decided not to request the work required to look back at the historic legacy.14 The Treasury told us that it considered collecting data on the benefits to be the responsibility of individual departments, and told us that its own focus is forward-looking to ensure that future PF2 projects work effectively rather than looking back over the historic stock of PFI deals.15 The IPA told us that data on the benefits of PFI doesn't exist, and to collect retrospective data against credible counterfactuals across the entire stock of projects would be a huge amount of work and a significant expense.16 We were concerned that this lack of historical data has left a large gap in the Treasury and IPA's understanding of the benefits of PFI.17 IPA accepted that this was frustrating and that in an ideal situation, it would have an asset register for each Department and each devolved authority, tracking the costs, benefits and status of PFI contracts, as might happen in the private sector.18 When we asked whether the benefits of PFI have justified the higher financing costs, the Treasury told us that this was "an impossible question to answer", because it did not have the facts needed.19 We were concerned that without any data quantifying benefits, the Treasury and IPA cannot assess whether PFI has been value for money,20 and the taxpayer cannot have confidence in PFI projects.21

6. The IPA told us that it had recruited a single member of staff, "pretty much on a full-time basis", to identify what data on the benefits of PFI exists across all 700 projects in the PFI portfolio.22 This exercise will only collate rather than create data. The Treasury and IPA told us that this is on-going analysis to inform future investment decisions, which will not result in a report.23 IPA told us that the other area it will focus on will be schools and hospitals nearing the end of their PFI contracts and comparing them against publicly- financed assets to see if the whole life benefits of PFI are materialising, for example how well maintained they are.24 It is entirely possible to collect data on benefits and undertake these exercises: the Department for Education is already collecting data, as part of the Priority School Building Programme, comparing the value for money of privately financed schools on PF2 contracts against public financed ones.25 The Treasury told us that the Department for Education's review was not initiated by either the IPA or HMT, and expects it will be completed in the summer of 2018.26