Whitehall addicted to PFI: MPs stage intervention

By Ian Dunt

Whitehall is addicted to PFI and needs to admit it has a problem, an influential committee of MPs has found.

Private finance initiative funding sees firms undertake major construction projects like hospitals and charge the state at a later stage, allowing departments to keep it off balance sheet.

It has been criticised in some quarters for surreptitiously privatising key state functions but was generally considered good value for money until the credit crunch made payments more financially taxing.

"PFI means getting something now and paying later. Any Whitehall department could be excused for becoming addicted to that," Treasury committee chair Andrew Tyrie said.

"We can't carry on as we are, expecting the next generation of taxpayers to pick up the tab. PFI should only be used where we can show clear benefits for the taxpayer.

"We must first acknowledge we've got a problem. This will be tough in the short term but it should benefit the economy and public finances in the longer term."

MPs demanded that the PFI projects are brought onto the balance sheet in a bid to prevent "perverse disincentives unrelated to value for money".

They also demanded that risk be transferred as much as possible to the private sector – a key complaint of many critics, who say that taxpayers bears the brunt when things go wrong during the work process.

The report concludes that high borrowing costs make PFI "extremely inefficient" as a method for financing projects.

But with the deficit reduction plan strapping departmental budgets down to a bare minimum, MPs are worried that the public sector will still be attracted to PFI as a way of green-lighting projects it could not otherwise afford.