tag:theconversation.com,2011:/us/topics/private-finance-initiative-12400/articlesPrivate finance initiative – The Conversation2022-11-29T13:58:13Ztag:theconversation.com,2011:article/1954002022-11-29T13:58:13Z2022-11-29T13:58:13ZPFI at 30: it’s hard to say anything positive about this deeply flawed financing model<p>It was Norman Lamont who first announced a new way of paying for public buildings and infrastructure in November 1992. In a <a href="https://api.parliament.uk/historic-hansard/commons/1992/nov/12/autumn-statement">speech to the House of Commons</a>, the then chancellor of the exchequer said he was looking to encourage more private financing for such projects. </p>
<p>Speaking only a few weeks after the government had been rocked by <a href="https://theconversation.com/why-black-wednesday-still-matters-it-was-the-start-of-markets-telling-politicians-what-to-do-190471">Black Wednesday</a>, he reassured the house he would “ensure that sensible investment decisions are taken whenever the opportunity arises”.</p>
<p>So began the era of private finance initiatives (PFIs), which saw more than 700 contracts signed off in the UK until the <a href="https://commonslibrary.parliament.uk/goodbye-pfi/">government stopped</a> doing them in 2018. They <a href="https://www.gov.uk/government/publications/private-finance-initiative-and-private-finance-2-projects-018-summary-data">produced projects</a> with assets worth approximately £60 billion, which are costing the taxpayer £170 billion – that’s a gap of £110 billion between what the assets are worth and what the taxpayer is paying for them. </p>
<p>So now that PFI has reached its 30th anniversary, how should it be remembered?</p>
<h2>What they are</h2>
<p>PFIs have paid for everything from roads to bridges to schools to hospitals, not to mention military training facilities, water and waste projects, sports facilities and prisons. Transport projects came first, such as the <a href="https://nation.cymru/news/a-u-turn-on-tolls-the-severn-bridge-pledge/">Severn River crossings</a> and the <a href="https://clok.uclan.ac.uk/22711/7/22711%20AAM.pdf">M6 Toll Road</a>. A refurbishment of some <a href="https://www.nao.org.uk/reports/innovation-in-pfi-financing-the-treasury-building-project/">HM Treasury buildings</a> was another early project, and was often cited by Conservative ministers as evidence of the Treasury’s belief in these schemes. </p>
<p>Generally PFIs – or public-private partnerships (PPPs), as they are sometimes known – involve a consortium of private companies financing, building, maintaining and operating assets for 25 to 30 years. Once operational, the public body effectively makes leasing payments to the lead contractor – subject to the assets being available and meeting key performance indicators. </p>
<p>The Treasury persistently claimed, at least initially, that this link between payments and performance would ensure the private sector bore most of the risks. By putting these experts in charge, it was argued that project management would improve. This was going to lead to more and better infrastructure, delivering value for money for taxpayers. </p>
<h2>Rhetoric vs reality</h2>
<p>PFI has certainly seen many infrastructure projects completed and facilities modernised which would not have been possible under traditional public procurement. But as far as the supposed benefits are concerned, the evidence suggests a disconnect between political rhetoric and reality. </p>
<p>Borrowing costs are one unavoidable problem, since contractors will most likely have a lower credit rating than the government. These costs get passed on to the taxpayer, which has constrained what authorities <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0408.2010.00508.x?casa_token=67XC3f19J0IAAAAA%3A52iVpXX-HAZygSfwWE7LXdHdKHFkEMXnMYgBi3wNMpahaeMetcMgSgKCreHZN_anN355yLgs7w-slxtI">such as the NHS</a> can spend on essential services, forcing them to reduce budgets accordingly. It also created <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/1467-923X.12990?casa_token=X17PTYGqWeUAAAAA%3AqMfhidbEmqwkcgTRc3sNCFDlZy4eiitOzQodVVPur-cM9hY4bFrd3N4Wt1naWqAFwE3xc9h0DiPl8hY4">pressure to reduce</a> project costs, leading to poorer infrastructure. </p>
<p>There’s evidence from PFIs in <a href="https://www.researchgate.net/profile/Jane-Broadbent/publication/238789662_Nature_Emergence_and_the_Role_of_Management_Accounting_in_Decision_Making_and_Post-Decision_Project_Evaluation/links/00b49528dcb0c11e93000000/Nature-Emergence-and-the-Role-of-Management-Accounting-in-Decision-Making-and-Post-Decision-Project-Evaluation.pdf">health</a> and <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/padm.12401?casa_token=tBI96iHYGo0AAAAA%3APAeIf5nkMMUdLgpKmnarEQQHgEJPesRcpEPccK86i0o0K-aOhrlQOd8Ju_2v5ux6f5gFSmDWCE29_2QH">roads</a> that performance-based payments don’t incentivise contractors. The financial incentives are often inadequate, since they form only a small portion of leasing payments, and it’s difficult to develop key performance indicators for long projects anyway. </p>
<p>There are also endless issues around asset risks. With schools, for example, <a href="https://www.sciencedirect.com/science/article/pii/S0890838914000031?casa_token=Uw2ZBlOFgD0AAAAA:WJG1mGN9MhTWZSToEfuhX66bzc3BG7TWjV9x6CXiBRPbFDlKs6aesAeg4vongNYgflyY3OFsfTU">empirical studies</a> highlight inherent complexities and subjectivity in how risks were allocated. According to this research, public authorities and their financial advisers could “manipulate” accounting numbers to make it look as though more risk was being transferred than was necessarily the case.</p>
<p>High returns earned by private investors also suggest departments were overpaying for transferring project risks. For example, equity returns in the M25 motorway project <a href="https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/894/89405.htm">were approximately 30%</a> – mkore than double the expected annual returns in PFIs.</p>
<p>Another issue is the difficulty in foreseeing and estimating all risks over a project’s lifetime. For example, the mid-1990s PFI contract for modernising the National Insurance Recording System (NIRS-2) experienced multiple delays and renegotiations during the pre-contract stage on account of uncertainties around future IT requirements. The Inland Revenue <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/1468-0408.00139?casa_token=ApoSFT6hNYsAAAAA:hiYpSdNpN8zS4PE8eG0HjmaqCCYARWjOvMlIzwgZ-ZvIKSngxf9ryNvAfX5E21PQizv0U-EkXStxik4">reportedly received</a> only limited compensation from the contractors for these delays, yet did not take further action to avoid prejudicing “the partnership relationship”. </p>
<p>Sometimes failures to estimate risks helped to push contractors into bankruptcy. The classic example is <a href="https://eprints.keele.ac.uk/4909/1/I%20Demirag%20-%20Sourcing%20public%20services.pdf">Carillion in 2018</a>, whose collapse was partly due to problems with <a href="https://www.theguardian.com/business/2020/jan/15/carillion-collapse-two-years-on-government-has-learned-nothing">PFI hospital contracts</a> in Birmingham and Liverpool. Similarly with the <a href="https://www.nao.org.uk/wp-content/uploads/2009/06/0809512es.pdf">London Underground</a> modernisation in the early 2000s, poorly foreseen costs caused contractor collapses. The incomplete project reverted to the government, costing taxpayers <a href="https://www.centreforpublicimpact.org/case-study/london-undergrounds-failed-ppp">billions of pounds</a>.</p>
<h2>Future concerns</h2>
<p>These difficulties help show why the UK government ultimately scrapped PFI. It had also found it more difficult to make austerity savings in the 2010s because of PFI payments, while unfinished projects such as the <a href="https://www.cityam.com/carillion-two-years-on-misery-as-major-hospitals-in-liverpool-and-birmingham-still-unfinished/">Birmingham and Liverpool</a> hospitals involved in the Carillion collapse produced waves of negative publicity. </p>
<p>Meanwhile, existing contracts remain a concern. Leaving aside leasing costs, <a href="https://www.nao.org.uk/report/managing-pfi-assets-and-services-as-contracts-end/">one critical issue</a> is contracts expiring at the end of their lifetimes. PFI holding companies aren’t required by law to to disclose much financial information, so there are unknowns around the state of <a href="https://committees.parliament.uk/publications/5144/documents/50775/default/">many assets</a>. Some could be passed on to the public in poor condition, and services could be disrupted as a result. </p>
<p>A <a href="https://committees.parliament.uk/work/921/managing-the-expiry-of-pfi-contracts">recent parliamentary review</a> pointed to uncertainties around funding to help better manage the expiry of contracts. The review also found an absence of clear guidelines for contract expiry in some of the oldest contracts (meaning the ones due to expire soonest), and limited trust between procuring authorities and their contractors. </p>
<p>The government’s Infrastructure and Projects Authority <a href="https://www.gov.uk/government/publications/preparing-for-pfi-contract-expiry">recently published guidance</a> for procuring authorities around contract expiries, but said nothing about making available technical, commercial, financial or legal expertise. Authorities will need to organise this in-house, raising the prospect of hiring expensive private consultants with taxpayers’ money. </p>
<p>Three decades after PFI launched as a “sensible” form of infrastructure investment, it’s <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752173/PF2_web_.pdf">now seen</a> by the government’s Office for Budget Responsibility as a fiscal risk. This is both because PFIs have been allowed to remain off the government’s balance sheet and because the risks often revert to the government if a contract fails. </p>
<p>PFI may have seemed sensible on paper, but successive governments <a href="https://link.springer.com/chapter/10.1007/978-3-030-72128-2_11">appear to have</a> implemented it to make projects happen faster, often to score political points. To make the best of a bad situation, changing the rules around the financial reporting of PFI holding companies and making sufficient resources available to manage asset handovers to public authorities would be a step in the right direction</p><img src="https://counter.theconversation.com/content/195400/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Yes it got many things built, but the legacy is fairly disastrous.Salman Ahmad, Lecturer in Accounting, Aston UniversityCiaran Connolly, Professsor of Accounting, Queen's University Belfastistemi demirag, Professor of Accounting, Tallinn University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/576022016-04-12T14:39:19Z2016-04-12T14:39:19ZScottish schools shutdown: problems with PFI buildings could hit the rest of UK<p>Pupils and parents in Edinburgh are still digesting the <a href="http://www.edinburgh.gov.uk/schoolclosures">news that</a> 17 schools have not reopened after the Easter break. It affects more than <a href="http://www.theguardian.com/uk-news/2016/apr/11/call-safety-review-all-edinburgh-schools-after-closures-pfi-scotland">7,000 pupils</a>, many of whom were getting ready for national exams at the five secondary schools affected. It may cast a light on the Private Finance Initiative (PFI), a policy widely used around the UK in recent decades for constructing public buildings with private money. </p>
<p>The closures date back to Storm Gertrude earlier in the year, which <a href="http://www.edinburghnews.scotsman.com/news/education/oxgangs-primary-still-closed-due-to-storm-gertrude-damage-1-4017477">toppled</a> part of a wall at Oxgangs Primary in the city. During repair work at that one and another primary, contractors found serious defects. When Edinburgh Schools Partnership, the consortium that oversees the PFI schools, told the city council it could not guarantee the safety of any of the schools that were built around a decade ago as part of the same contract, the council decided to temporarily close them all. </p>
<p>City of Edinburgh Council is particularly sensitive to the safety of school buildings. A 12-year-old pupil <a href="http://www.bbc.co.uk/news/uk-scotland-edinburgh-east-fife-26834110">died</a> two years ago when a wall in a school changing room collapsed at the city’s Liberton High School (this was not one of the schools affected by the latest announcement). There are <a href="http://www.dailyrecord.co.uk/news/scottish-news/calls-safety-review-scottish-pfi-7730631#QVp6qzmb6TmWbcUK.97">gathering calls</a> for a safety review of other PFI schemes in Scotland, and policymakers further south are no doubt watching anxiously. The question is how big these problems could become. Can we expect more closures across the country – PFI was used not only for schools but for hospitals, prisons, roads, bridges and much more. </p>
<h2>The UK picture</h2>
<p>The UK has been a major player in PFI since it was introduced in its current form in the 1990s by the Conservative government, before being renamed Public Private Partnerships (PPP) by the Labour government later that decade. Usually the model is that a local council contracts with a private company to design, build and finance a building and then maintain it for 25 years. The council pays an annual fee to cover these costs and is also responsible for all the teaching staff and teaching; and at the end of the contract it usually has ownership of the building.</p>
<p>By 2014 there were 671 operational PFIs in the UK. Their total capital value <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/387228/pfi_projects_2014_summary_data_final_15122014.pdf">was £56.6 billion</a> – that’s the aggregate financing costs in all the projects plus any public-sector capital contributions. These cost the public purse £10.3 billion in the year 2014-15 in services charges and debt payments. (I should add that <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/387227/projects_in_procurement_as_at_31_March_2014.xlsx">while PFI continues</a> [pdf] in England, in Scotland the SNP government replaced it a few years ago with <a href="http://www.theguardian.com/public-leaders-network/2011/jun/07/scotland-privately-fund-public-projects">Non-Profit Distributing (NPD) contracts</a> – NPD uses a similar model but caps the profits that contractors are allowed to make.)</p>
<p>Although PFIs and NPDs should be more expensive than public financing, since government borrowing is usually cheaper than private, these schemes came with certain advantages. They used to mainly be “off balance sheet” – in other words, the cost of building the project was <a href="http://www.publications.parliament.uk/pa/ld200910/ldselect/ldeconaf/63/63i.pdf">not added</a> to the public sector accounts. This meant a council could fund a new school without appearing to borrow much, a great way of making public accounts look healthier, particularly given the huge backlog of poorly maintained public infrastructure and schools in the 1990s to 2000s. </p>
<p>This benefit <a href="http://www.ifrs.org/current-projects/ifric-projects/ifric-12-service-concession-arrangements/Pages/ifric-12-service-concession-arrangements.aspx">was severely constrained</a> by new international accounting standards a few years ago, but there are arguably others. <a href="https://www2.unece.org/wiki/download/attachments/23758291/Treasury%20-%20PFI%20Strenghtening%20long%20term%20partnerships.pdf?api=v2">According to</a> the Treasury, PFIs can make it possible <a href="http://www.tandfonline.com/doi/abs/10.1080/09540960903492331#.VwukzbzSc0o">to provide</a> public services more efficiently and effectively. [You get](https://books.google.co.uk/books?id=CvSoCgAAQBAJ&pg=PT470&lpg=PT470&dq=McQuaid,+R.+(2010)+‘Theory+of+Organisational+Partnerships+–+partnership+advantages,+disadvantages+and+success+factors’,+in:+S.P.+Osborne+(ed.)+The+New+Public+Governance:+Emerging+perspectives+on+the+theory+and+practice+of+public+governance&source=bl&ots=QT676MsSGR&sig=qZBeZw0y8lnGYrtECmfsdPj_iAU&hl=en&sa=X&ved=0ahUKEwj9l5jlpIbMAhWBxRQKHbsIAvsQ6AEILTAC#v=onepage&q=McQuaid%2C%20R.%20(2010)%20‘Theory%20of%20Organisational%20Partnerships%20–%20partnership%20advantages%2C%20disadvantages%20and%20success%20factors’%2C%20in%3A%20S.P.%20Osborne%20(ed.)%20The%20New%20Public%20Governance%3A%20Emerging%20perspectives%20on%20the%20theory%20and%20practice%20of%20public%20governance&f=false) access to the innovations that have been developed in the private sector; you develop more effective incentives for each party; and you spread risk more appropriately than in traditional public financing. This can in theory mean better value for money for the public sector despite the high premiums. </p>
<h2>Short-termism</h2>
<p>No doubt many PFIs provide good premises for important public services, but we have sometimes ended up with poorly executed schemes motivated more by short-term financial imperatives and not long-term quality or value for money. This <a href="http://www.allysonpollock.com/wp-content/uploads/2013/09/AP_2013_Pollock_PFILewisham.pdf">appears to include</a> many early schemes <a href="https://www.nao.org.uk/wp-content/uploads/2007/03/0607149es.pdf">such as</a> the <a href="https://www.researchgate.net/publication/301200720_%27The_Bridge_to_Skye_Scotland_-_PFI%27?ev=prf_pub">Skye bridge</a>, train leasing and many hospitals. </p>
<p>Lack of transparency is another <a href="http://www.theguardian.com/commentisfree/2010/nov/22/pfi-private-finance-refuse-debt">common criticism</a>, with schemes using grounds of commercial confidentiality to keep details hidden. And there have been PFI contracts where buildings may be structurally designed to last at least <a href="http://www.gov.scot/resource/doc/217736/0091011.pdf">50 years</a>, but the contractor has only used fittings that would last for the duration of the 25-year contract. This can reduce the quality and mean major expenses for the authority after the contract has ended. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/118188/original/image-20160411-21956-1dpkpso.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/118188/original/image-20160411-21956-1dpkpso.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/118188/original/image-20160411-21956-1dpkpso.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=353&fit=crop&dpr=1 600w, https://images.theconversation.com/files/118188/original/image-20160411-21956-1dpkpso.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=353&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/118188/original/image-20160411-21956-1dpkpso.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=353&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/118188/original/image-20160411-21956-1dpkpso.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=444&fit=crop&dpr=1 754w, https://images.theconversation.com/files/118188/original/image-20160411-21956-1dpkpso.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=444&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/118188/original/image-20160411-21956-1dpkpso.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=444&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Skye bridge was an early PFI contract.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/16993804@N08/2212953607/in/photolist-4nxY1x-ePofZj-ePohMW-9jUniC-bwtxaQ-9RPdPR-9RPetB-8DA2He-7Td7Ls-8DDhxE-rpWWmw-7Td7Lw-a2iWRV-divvur-wVVWUB-hz4PSY-6HVViS-hz6px8-a72wJk-5k5aBk-iRAPTn-xLjU2W-rFBsyo-zJnPic-poYvbK-pkSz71-pFaKWn-CEtja-3hPnuN-9XGWFe-4AyUFM-5nSTiV-7Y2yF7-7XY6m8-9wVC1c-fbbPpB-4Zyc7h-4MevC-nKBeo6-nssfrZ-eRZrmn-nHfEvH-4Z5bZZ-7y6K3f-rt5bp-58iZ3A-fStQ7g-bWsemt-4T15eQ-b3EpEv">Design Ag</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>So what of Edinburgh? Surveys are being carried out on all 17 schools and everyone is waiting to hear the outcome – several more of the schools <a href="http://www.theguardian.com/education/2016/apr/11/serious-defects-two-more-edinburgh-schools-built-using-pfi">are showing</a> serious defects while others <a href="http://www.bbc.co.uk/news/uk-scotland-edinburgh-east-fife-36017531">are expected</a> to reopen in the coming days. Edinburgh Schools Partnership <a href="http://www.edinburghnews.scotsman.com/news/edinburgh-school-crisis-consortium-facing-million-pound-penalty-1-4096273">has called</a> the standard of construction “completely unacceptable”. <a href="https://www.holyrood.com/articles/news/edinburgh-pfi-schools-crisis-%E2%80%93-private-consortium-will-foot-bill">It is</a> footing the bill for investigating and resolving the issues, while Galliford Try, whose Miller Construction subsidiary was the original building contractor, <a href="http://www.edinburghnews.scotsman.com/news/edinburgh-school-crisis-consortium-facing-million-pound-penalty-1-4096273">said</a> it supports the closures ahead of more information becoming available. </p>
<p>There is much that remains unclear – not least whether the problem is poor workmanship or choice of construction materials or inadequate building control standards. A key question may be whether the buildings were designed adequately and for the level of wind that caused the structural problems at Oxgangs. </p>
<p>The council and the PFI consortium do seem to have taken the right short-term decisions to be open about the issue and about who is responsible, and to focus on providing alternatives for the pupils. What still needs to be considered will be the long-term implications for both construction standards and PFIs – both in Edinburgh and across the UK. Perhaps the inevitable inquiry will also help lead to a rethink on whether short-term cost savings are really a sensible way to build for the future.</p><img src="https://counter.theconversation.com/content/57602/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ronald McQuaid is currently writing a paper on PFI for the Asian Development Bank Institute. The views expressed in this piece are entirely his own. </span></em></p>The Private Finance Initiative was meant to be the solution to 21st century public buildings. Edinburgh’s school problems are far from unique, however.Ronald McQuaid, Professor of Work and Employment , University of StirlingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/404212015-09-01T15:57:56Z2015-09-01T15:57:56ZWhy private finance initiatives are so addictive – and yet offer such poor value for money<p>George Osborne is in the process of finding £20 billion of savings with his <a href="https://www.gov.uk/government/news/spending-review-launched-by-chancellor">government spending review</a>. As the government searches to balance the budget and reduce public spending, it is worth re-examining an old favourite when it comes to keeping spending off the balance sheet – private finance initiatives (PFI). </p>
<p>This is a dangerously addictive way of financing public spending that rarely has an economical result. In fact spending cuts put pressure on government departments who have to make fixed PFI payments to the private sector from their reducing budgets. </p>
<p>Both Labour, the Coalition government and the Conservatives are guilty of resorting to it, however. The PFI policy was formulated in the backdrop of the 1990-1992 recession and was officially introduced in 1992 by the Conservative government as a means of obtaining much needed private finance to invest in public projects. But it was under Labour that PFI really took off. There were about £2 billion worth of projects in May 1997, which increased to £51.2 billion before they lost power. Under the coalition government, PFI grew only moderately <a href="https://www.gov.uk/government/publications/private-finance-initiative-projects-2014-summary-data">to £56.6 billion in March 2014</a>. </p>
<p>Under PFI, the private sector funds big government projects like hospitals, schools and prisons, and the public sector is expected to make regular payments for them over the term of the contact, usually lasting 30 years or more. The problem with PFI, however, is that although they may save the government money in the short-term, they often end up costing more in the long run.</p>
<p>The government’s commitment to PFI projects is enduring, however. It was the credit crunch and austerity programme that followed the global financial crisis that led to a decline in both the <a href="https://www.gov.uk/government/publications/private-finance-initiative-projects-2014-summary-data">number and size of PFI projects approved</a>. Nonetheless, the public sector remains committed to making regular payments to the private sector. </p>
<p>Successive UK governments have used value for money and the idea that PFI reduces the risk involved in these big projects by shifting it to the private sector to justify their increasing use of these initiatives. But the public sector has been forced to step in to rescue contractors when things go awry. </p>
<p>For example a £1.5 billion bailout fund was provided to seven NHS trusts in 2014 to help them service their debts <a href="http://www.theguardian.com/society/2012/feb/03/hospital-trusts-emergency-fund-pfi">and meet their PFI payment obligations</a>. A number of PFI schools have closed due to poor decision-making, while the public sector had to make substantial payments to the private sector <a href="http://www.telegraph.co.uk/news/politics/8282455/PFI-70m-bill-for-schools-that-had-to-close.html">to dissolve the PFI contract</a>. </p>
<h2>Pushing the problem down the road</h2>
<p>Despite consistently offering poor value for money in practice, PFI remains popular. The alternative is that services are paid for upfront through borrowing and deficit spending. Governments prefer to avoid this, as it can hurt the country’s interest rate and credit rating. </p>
<p>In the short term, private finance also enables a government to avoid tax increases. Plus, PFI contracts enable governments to keep debts off the public sector’s balance sheet when preparing National Accounts under EU rules. They are particularly helpful in times of austerity, economic recession and fiscal deficit. </p>
<p>Unfortunately, however, history shows that PFI bills end up being picked up by future generations of governments, taxpayers and users who must pay for projects over their duration and when private sector contractors end up going bankrupt for poor risk management.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/93559/original/image-20150901-13412-1swv4cn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/93559/original/image-20150901-13412-1swv4cn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/93559/original/image-20150901-13412-1swv4cn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/93559/original/image-20150901-13412-1swv4cn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/93559/original/image-20150901-13412-1swv4cn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/93559/original/image-20150901-13412-1swv4cn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/93559/original/image-20150901-13412-1swv4cn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">PFI-indebted Bart’s NHS Trust has been found to be running dangerously short-staffed and overcrowded hospitals.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/57474170@N05/6996413567/in/photolist-bEfs18-qPwenF-JMFug-3KUbpp-aHGXKc-brkUHm-brkqd5-brkhbm-bEfqjp-brkTR3-brkqwJ-bEfbGX-bEfgFk-brkuTG-bEfnfz-brkiJE-bEfh96-brkrJb-brkf6q-brkmDf-brkhYC-bEfLxH-brkRZG-bEff1n-brkoLj-bEfKgR-bEfphV-bEfedg-brkt1L-bEffQV-brkknm-bEfLcn-brkY4f-bEfNeH-bEf892-brknqu-bEfrzg-bEfQSr-bEfdoZ-bEfUE2-bEfUdn-bEfcHt-brkUfu-brkvj7-brkohd-bEfJQX-brksAU-brku3C-bEfhWX-bEfiLV">givingnot@rocketmail.com | flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>There is a mechanism in place to try and ensure that PFI projects will be cost effective. In the planning stages, government departments and their financial advisers must show that PFI offers better value for money than traditional government spending (and borrowing). But a number of PFI researchers (including myself), have found that the accounting numbers used in the PFI investment appraisal process <a href="http://www.sciencedirect.com/science/article/pii/S0890838914000031">are subjective and may be manipulated</a> to justify the PFI decision. </p>
<h2>Fundamental issues</h2>
<p>In cases where PFI is a success, the value for money it brings is often marginal compared to conventional procurement – which hardly warrants the risks and uncertainties associated with PFI. Then, to add insult to injury, private sector partners go on to make excessive profits from their subcontracting activities, selling off their investments, and refinancing them after the risky construction phase is over. </p>
<p>Despite efforts by the coalition to revise the PFI framework, fundamental problems remain. Namely, the fact that services are being delivered through rigid and long-term contracts with private companies that pay significantly higher interest rates than the government and have to deliver efficiency savings to generate profits for their shareholders.</p>
<p>The alternative to PFI is conventional procurement whereby the capital costs associated with the infrastructure is financed and paid upfront by the government through taxation and borrowing. Similar to PFI, the management and maintenance of infrastructure may be sub-contracted to the private sector but through renewable short term (for example five year) contracts. They should be renewed based on the performance of the facilities management companies. Unlike PFI, ownership and control of the asset should be maintained by the public sector. </p>
<p>These issues, along with many others (including problems with protecting worker rights, the creation of a two-tier workforce <a href="https://www.unison.org.uk/get-help/knowledge/contracts/two-tier-workforce/">when private and public staff are employed on different contracts</a> such as zero hour and permanent contracts) show why PFI needs a serious rethink. If the PFI policy provided value for money in the long-run, then it might be worth pursuing. But the current evidence and experience with PFI show that the costs to taxpayers far outweigh the benefits.</p><img src="https://counter.theconversation.com/content/40421/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>PFI gives short-term gain for long-term pain for governments and taxpayers.Iqbal Khadaroo, Reader in Accounting, University of EssexAminah Abdullah, Lecturer in Accounting, University of RoehamptonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/380202015-03-03T11:32:47Z2015-03-03T11:32:47ZThe trouble with the floundering flagship that is Barts Health<figure><img src="https://images.theconversation.com/files/73471/original/image-20150302-15950-j21p9r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Except if it's a private financing initiative.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/mamsy/5841054741/in/photolist-9U9W5n-9UcJWm-57G1wv-57G1wB-pmL6Fo-poLvXU-61eZe5-57FhjK-57FhjT-57Fhk6-9AHGJJ-9AENpe-57Fhjv-57FhjZ-57FhjV-oHLhz2-57kLEY-8q2G4W-oHLRYA-oHLfUi-48cSa2-61JN6S">Bookfinch</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Barts Health is the biggest NHS trust in the UK with a turnover of £1.2 billion a year and in charge of running St Bartholomew’s, Europe’s oldest hospital. But since January <a href="http://www.theguardian.com/society/2015/feb/19/barts-health-chief-executive-chief-nurse-resign">it has lost</a> its finance director, chief nurse and chief executive. Whatever face-saving spin they may put on it – the trust’s finances weren’t mentioned in any of <a href="https://rosslydall.wordpress.com/2015/02/19/barts-boss-quits-after-trust-posts-biggest-financial-black-hole-in-nhs/">the resignations</a> of these three senior managers – their departures certainly seem connected with financial and managerial problems.</p>
<p>The trust is deep in debt, sinking deeper, with projected deficits for 2014-15 <a href="http://m.hsj.co.uk/5081842.article">rocketing upwards from a previous figure of £43m</a> to £93m, according to its February board papers – or even <a href="http://m.hsj.co.uk/5082639.article">as much as £100m</a>.</p>
<p>It’s also facing at least one, possibly two highly critical reports from the Care Quality Commission. It’s struggling to recruit and retain nursing and other staff and in the meantime is <a href="http://rcnpublishing.com/doi/pdfplus/10.7748/ns.29.24.7.s2">spending more than any other English trust</a> on agency staff.</p>
<h2>Private financing</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/73470/original/image-20150302-15991-1nwypzk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/73470/original/image-20150302-15991-1nwypzk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=859&fit=crop&dpr=1 600w, https://images.theconversation.com/files/73470/original/image-20150302-15991-1nwypzk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=859&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/73470/original/image-20150302-15991-1nwypzk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=859&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/73470/original/image-20150302-15991-1nwypzk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1080&fit=crop&dpr=1 754w, https://images.theconversation.com/files/73470/original/image-20150302-15991-1nwypzk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1080&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/73470/original/image-20150302-15991-1nwypzk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1080&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Barts cherub: a metaphor.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/jim68000/3209950853/in/photolist-eSmRdt-e3fiJS-e39BbZ-8P37YJ-dU2GEQ-5pe2i1-5TDQye-duEgZy-4vbV3c-iZgpym-4i7Tor-84nSJF-e3ne6z-cW6Nnu-jrEJez-gQmXeJ-9wFZmt-9wJX9b-9wJWJQ-98kfq8-nXxXN8-nZkncz">Jim</a></span>
</figcaption>
</figure>
<p>The financial problem has been a ticking time bomb ever since what was then called Barts and the London Hospital Trust was given the go-ahead in 2006 to sign up for a costly £1.1 billion scheme to redevelop both Barts Hospital and the Royal London, financed under the ruinously expensive Private Finance Initiative (PFI). Believe it or not, the £1.1 billion scheme was in fact <a href="http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1403271/">a scaled-down version</a> of the original plan, which had mushroomed in size to a staggering £1.9 billion.</p>
<p>Patricia Hewitt, then former secretary of health, rejected the £1.9 billion plan, but gave the nod to a new one that <a href="http://www.telegraph.co.uk/news/uknews/1512102/Hospital-to-mothball-250-beds.html">mothballed 250 of the beds</a> – 20% of the planned capacity – to save costs. Three floors of the new buildings that were to be built were subsequently “shelled” (left empty) to reduce the cost.</p>
<p>But like smaller PFI schemes, the actual cost to the trust isn’t really £1.1 billion, but much more, with a legally binding contract stipulating inflation-linked instalments, rising every year, for the next 35 years. The “unitary charge” payments – the payments made for the initial capital and ongoing maintenance costs – for both the building and for non-clinical support services started high at £109m per year. But these payments will keep on rising, regardless of how much revenue flows into the trust. Treasury <a href="https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CCcQFjAB&url=https%3A%2F%2Fwww.gov.uk%2Fgovernment%2Fuploads%2Fsystem%2Fuploads%2Fattachment_data%2Ffile%2F100806%2Fpfi_signed_projects_list.xls&ei=nab0VMroL8L4UM_hg9gD&usg=AFQjCNHFPpW4IrW33x9M5m7yO1jl8YSPOg">figures</a> show that the PFI development eventually cost £1.15 billion; so far £675m has been paid back, but another 33 years will come to, at the very least, £6.5 billion by 2048. </p>
<p>Of course the contract was signed back in the midst of Labour’s year-on-year increases in NHS funding, when it seemed that the good times might go on for ever.</p>
<h2>Taking on more hospitals</h2>
<p>But in the aftermath of the banking crash and the abrupt turn to public sector austerity to pay for the bank bail-out, the unitary charges that would have to be paid began to seem much less manageable. So when the new buildings came into service in 2012, the trust was not only running the historic St Bartholomew’s (Barts) Hospital itself in Smithfield and the newly rebuilt Royal London Hospital in Whitechapel, but it had also <a href="http://webarchive.nationalarchives.gov.uk/20130513202829/http:/www.ccpanel.org.uk/cases/Merger_of_Barts_and_The_London_NHS_Trust_Newham_University_Hospital_NHS_Trust_and_Whipps_Cross_University_Hospital_NHS_Trust.html">taken on two busy general hospitals</a> in Newham and Whipps Cross.</p>
<p>The inclusion of the combined turnover of £413m from these two hospitals effectively expanded Barts Health’s total revenue by more than 50%, and brought in the prospect of more income. At first, then, it appeared that the PFI payments would reduce as a proportion of trust turnover, from 16% to a less scary but still unaffordable 11% of the Barts Health budget.</p>
<p>But under the pressure of the <a href="http://www.theguardian.com/society/2014/oct/06/nhs-breaking-point-despite-spending-promises-medical-coalition-warns">longest-ever freeze on NHS spending</a>, which could continue at least until 2021, and plans for even more massive savings in the next few years, Barts’ financial plight has steadily worsened.</p>
<p>The tariff paid for each treatment is being scaled down by up to 4% each year. And with local commissioning groups seeking ways to limit the number of people seeking hospital treatment and levying financial penalties on trusts that treat more patients in A&E than planned or fail to hit target times, the trust has been left with no leeway to deal with future financial pressures. </p>
<h2>Running scared</h2>
<p>The quest for cost savings has driven managers into short-sighted moves, such as <a href="http://www.weareaspire.com/blogs/you-don-t-have-to-fear-down-banding-11941392515">down-banding</a> nursing <a href="http://www.peoplesinquiry.org.uk/pdf/PE-NELondonmaternity%20issues.pdf">staff</a>, and cutting services and quality of care. And impatient managers, trying to dragoon staff into working harder for less, and fearful that they might face angry local reaction if their cash-saving plans were publicly known, cracked down on any sign of dissent. </p>
<p>The bulk of the cuts could be expected to fall on Whipps Cross and Newham hospitals, since these sites are predominantly NHS-owned, allowing buildings to be closed or land to be sold off. Any cuts in service in Barts and the Royal London Hospital would still leave the steadily rising unitary charge to be paid. </p>
<p>In 2013, Charlotte Monro, chair of the Whipps Cross branch of UNISON, who had 26 years of unblemished NHS service, was <a href="http://www.theguardian.com/commentisfree/2014/jan/07/climate-of-diktat-and-fear-nhs">suspended and then sacked</a> on trumped-up allegations after speaking out over fears for older people’s services. But speaking at a <a href="http://www.bartshealth.nhs.uk/media/261739/150204%20Barts%20Health%20NHS%20Trust%20Board%20papers%20-%20Part%201.pdf">February board meeting</a> about the CQC reporting that staff were afraid to speak for fear of “repercussions”, Morris was clearly unable to recognise the impact of such cases.</p>
<p>Stories of bullying and intimidation of staff at Whipps Cross and elsewhere in the trust have continued. Last year Barts Health commissioned a review by <a href="http://www.bartshealth.nhs.uk/media/213023/141001%20Trust%20Board%20Part%201.pdf">Duncan Lewis</a> – presented to the board – which identified bullying and race discrimination as key issues, with no apparent action against guilty managers. But not enough seems to have changed on the ground and staff fears of speaking out were a factor in <a href="http://www.hsj.co.uk/hsj-local/acute-trusts/barts-health-nhs-trust/chief-executive-of-1bn-turnover-trust-resigns/5082504.article#.VPSqVI1ybxk">critical CQC reports</a>, which have not yet been published.</p>
<h2>Future still looks bleak</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/73472/original/image-20150302-15991-1j3oxl1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/73472/original/image-20150302-15991-1j3oxl1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/73472/original/image-20150302-15991-1j3oxl1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/73472/original/image-20150302-15991-1j3oxl1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/73472/original/image-20150302-15991-1j3oxl1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/73472/original/image-20150302-15991-1j3oxl1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/73472/original/image-20150302-15991-1j3oxl1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Whitechapel: in need of solid services.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/55935853@N00/3248714740/in/photolist-5X5vH7-fmBxip-dV74Vd-561QF3-eRvLn2-5obnWB-5626cy-55WE9r-4W647b-5626vh-9EvdFw-qTY1Bt-5oaDXZ-4DZP9K-nZe5zi-n4ECnb-fECs2e-n4CSna-hdgFiJ-561R3d-5QhXgG-mZiL6p-5Qi3rj-qngUR7-fWtVns-5cnNUz-fQfMWd-btpzi9-bGjp4M-7LqZS8-mFQKpZ-fmRHLA-fmBtxK-5Jpc5s-mFQp2B-oYU3ob-mFQprz-nHTMAt-ipgyA3-55WUGF-fmBrAX-fmRzgE-68C2xH-foNNuy-fmRH5G-iwp2aP-foPtUw-fmRDBm-fmBndR-efXxZV">Ewan Munro</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>There always was a supreme irony in building one of the world’s most extravagant and costly hospitals in one of the most deprived boroughs in England. Now as the need for healthcare continues to increase, the trust’s future is increasingly bleak. </p>
<p>The East London Clinical Commissioning Groups <a href="http://www.eastlondon.nhs.uk/About-Us/Trust-Board-Meetings/Trust-Board-Meetings-2014-docs/November-2014/11a-TBD-2014-11-06-TSCL-Presentation.pdf">have drawn up a strategy</a> which starts from the need for the CCGs to make savings of £128m over five years – but notes that local NHS trusts are facing much bigger proportional savings targets totalling £434m, of which £324m has to come from Barts Health.</p>
<p>The plan envisages this requiring more “productivity” increases, alongside cuts, closures and sale of hospital sites – and this inevitably means cuts and closures in Whipps Cross, Newham and the London Chest Hospital.</p>
<p>In desperation the Barts Health board has been splashing out £500,000 per month on management consultants – <a href="http://www.hsj.co.uk/hsj-local/acute-trusts/barts-health-nhs-trust/exclusive-barts-health-turnaround-consultancy-spend-revealed/5078275.article">£7m in 14 months</a>. But as the deficits keep mounting up and the pressures on the trust keep growing, many will feel this is throwing good money after bad.</p>
<p>The only way out for Barts is for the government to step in and force a renegotiation of the PFI contract to reduce payments to a fair and affordable level. Otherwise a debt-laden flagship hospital project could soon drag down health services for more than a million Londoners.</p><img src="https://counter.theconversation.com/content/38020/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Lister works for London Health Emergency, a pressure group campaigning against privatisation cuts and closures in the NHS, and critical of the Private Finance Initiative. He acts as an occasional unpaid advisor to the National Health Action Party</span></em></p>Britain’s biggest hospital trust also has the largest financial black hole in the NHS. How did it get there?John Lister, Associate Senior Lecturer, Coventry UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/317992014-09-18T05:26:13Z2014-09-18T05:26:13ZPFI contracts to build waste incinerators burned more money than rubbish<p>More than £200m has been spent on failed waste management projects, according to a scathing <a href="http://www.publications.parliament.uk/pa/cm201415/cmselect/cmpubacc/106/106.pdf">report</a> by a cross-party group of MPs. The Public Accounts Committee <a href="http://www.bbc.co.uk/news/uk-politics-29226234">blamed</a> “lax” and “poorly drafted” public-private funding arrangements.</p>
<p>But though MPs are right to criticise these contracts, they fail to oppose the obsession with private finance itself. We shouldn’t be afraid to say it: waste management is simply cheaper and more effective in public hands.</p>
<p>The problems date back to Private Finance Initiative (PFI) contracts signed in the late 90s. Under PFI, private businesses stump up the money to build new infrastructure and the public sector pays them back over time.</p>
<p>Such schemes have proven controversial and MPs have in the past <a href="http://www.publications.parliament.uk/pa/cm201012/cmselect/cmpubacc/1201/120102.htmFor">criticised PFI</a> in roads, hospitals, schools and the London underground, as well as waste management. </p>
<p>In this case, some projects have simply not been finished. For instance the UK government has paid Surrey County Council £124m since 1999, tied to the council’s deal with a contractor to build two waste-to-energy plants. Fifteen years on, these plants have still not been built. And the money? If only waste could be incinerated this easily.</p>
<h2>Predictable problems</h2>
<p>The latest report shows how the commercial interest in profitable incinerators can distort policies for dealing with waste, at the expense of recycling and re-use.</p>
<p>Waste disposal is rapidly developing and MPs are right to highlight how inflexible these contracts are in the face of such change. Fixed 25-30 year contracts are standard in PFI deals, but they struggle to factor in new technologies and uncertain forecasts of the amount of rubbish produced and the extent of recycling. </p>
<p>But these problems were predictable – and clearly identified by critics of privately financed incinerators. Friends of the Earth <a href="http://www.foe.co.uk/sites/default/files/downloads/waste_pfi.pdf">warned in 2008</a> that PFI waste operators were pressing councils to commit to high and growing future waste levels, despite evidence of a levelling-out and even decline. The problems with a proposed PFI waste incinerator in Norfolk, highlighted in the committee report, were very clearly set out <a href="http://www.farmerscampaign.org/pages/pfi.html">several years ago</a> by Chris Edwards of the University of East Anglia. Even waste management firms themselves <a href="http://www.iswa.org/uploads/tx_iswaknowledgebase/Berthoud.pdf">sometimes admit</a> there is excess incineration capacity across Europe. </p>
<p>The deals nevertheless went ahead, driven by the well-known problem of exaggerated demand forecasts in all kinds of public-private partnerships. Just as road and rail schemes come with excessive traffic forecasts, and new stadiums or sporting events exaggerate their <a href="https://theconversation.com/olympic-style-mega-events-reach-new-frontiers-at-a-cost-22446">supposed “economic impact”</a>, so proposals for waste treatment plants come with unrealistic consumption projections. Such claims – usually made by consultants with a vested interest – make the projects more likely to be approved. </p>
<p>Exaggeration also raises the level of business guaranteed under PFI contracts – a further incentive. According to a <a href="http://flyvbjerg.plan.aau.dk/JAPAASPUBLISHED.pdf">survey by Danish academics</a>, the distortion of forecasts is so consistent and widespread it was only explicable as:</p>
<blockquote>
<p>systematic misrepresentation, that is, lying … The problem of misinformation is an issue of power and profit and must be dealt with as such, using the mechanisms of transparency and accountability.</p>
</blockquote>
<p>The UK government was responding to the problems after they emerged, not challenging the projections or the investigating alternative possibilities beforehand. Even the EU, despite its own enthusiasm for uniting the public and private sectors, has proved capable of saying no. Earlier this year, for instance, it <a href="http://bankwatch.org/news-media/blog/cold-shower-czech-incinerator-plans-no-eu-funding-says-european-commission">refused to subsidise</a> a number of incinerators in the Czech republic where demand couldn’t justify the costs.</p>
<h2>Taking it in-house</h2>
<p>One obvious solution to the whole financing mess would be for local councils to simply build, own and operate incinerators themselves. However, government credits are only available for PFI schemes, and the committee report is also silent about the option of direct public financing.</p>
<p>Local authorities are effectively locked in to public-private deals for waste management if they want to get the benefit of government “PFI credits”. As the MPs report puts it, this “incentivises the use of PFI to construct waste management assets over other options for reducing the amount of waste sent to landfill”.</p>
<p>In Sweden, Germany and Denmark, groups of municipalities have <a href="http://www.recobaltic21.net/downloads/Public/Project%20results/wmreview_swe_ge_de_fin.pdf">built and run incinerators themselves</a>. Some local authorities in the US own their own incinerators too, including at least two in <a href="http://www.dec.ny.gov/docs/materials_minerals_pdf/wtelist.pdf">New York state</a>.</p>
<p>This reduces and shares risks, but it also erodes potential profits from the market and the dominance of the private companies. No surprises then that the waste-to-energy companies aren’t too pleased – but <a href="http://curia.europa.eu/juris/liste.jsf?language=en&num=C-480/06">the European Court of Justice rejected a legal challenge</a> against an inter-municipal incinerator set up by a group of local authorities around Hamburg. </p>
<h2>Going public</h2>
<p>The core reason to build new infrastructure with public funds is financial. It is intrinsically less expensive than PFI or other public-private partnerships and avoids the risk of expensive and inflexible long-term commitments.</p>
<p>Even the Republican governor of Alaska – successor to Sarah Palin – has recently scrapped a public-private plan for a bridge in favour of <a href="https://www.alaskadispatch.com/article/20131218/parnell-wants-abandon-public-private-partnership-let-state-build-knik-arm-crossing">direct government provision</a>, because: “Having the state, rather than a private developer, fund the project could save hundreds of millions of dollars.”</p>
<p>The UK, however, remains frozen in its commitment to private operators, in waste and elsewhere – as far as government support is concerned, there really is <a href="http://books.google.co.uk/books/about/Capitalist_Realism.html?id=ibN3fGpW1DIC">no alternative</a>.</p>
<p>The committee’s report does nothing to change this. It calls for the government to help “improve local authorities’ contracting capability”, but not to develop the capacity to run their own systems. It concludes that 25-30 year PFI contracts are too inflexible, but without acknowledging that the private sector will not build and operate incineration plants without such contracts. </p>
<p>While the report provides further evidence of the need for a break from the political orthodoxy of the past 25 years in order to recreate a mainstream option of direct municipal operations, the PAC itself does not make that break.</p><img src="https://counter.theconversation.com/content/31799/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Hall has received funding for research from the European Commission FP5 and FP6 programmes, European Commission DG Devco, Rockefeller Brothers Foundation, University of Greenwich, Public Services International, European Public Services Union, Oxfam, World Development Movement, and others.</span></em></p>More than £200m has been spent on failed waste management projects, according to a scathing report by a cross-party group of MPs. The Public Accounts Committee blamed “lax” and “poorly drafted” public-private…David Hall, Visiting professor of Public Services International Research Unit, University of GreenwichLicensed as Creative Commons – attribution, no derivatives.