Margaret Hodge, fiery chairman of the influential Public Accounts Committee, has attacked Public Finance Initiatives as a “rotten deal”.
Public Finance Initiatives were popularised by the New Labour government as a way to fund large school and hospital projects with private capital. However, they have become controversial for their levels of efficiency. The Treasury Select Committee branded PFI “extremely inefficient” as a way to finance projects.
Hodge’s Public Accounts Committee has recently released a report attacking the “staggering” waste. They found that £131.5bn was being spent on these projects, four times as much as they are worth.
Her criticism on Monday came as experts gave evidence to the committee about PFI. Mark Hellowell, lecturer in Health Systems and Public Policy, admitted there was an unaccountable wastage in each PFI deal. He said:
“However you do this, you end up with an element of excess return… that can be seen as bad value [and] it is difficult to account for”
According to Hellowell, the level of inefficiency rests around 5%. In other terms, this amounts to almost £50m in “excess return” (i.e. waste).
MPs were highly critical of PFI’s levels of inefficiency. Hellowell explained this was a side-product of PFI’s “overwhelming dominance” in hospitals and schools projects. He added – “it is the only game in town”
Members of the committee had limited success in getting answers from Robin Herzberg, Managing Director at Carillion Private Finance. Herzberg mounted a strong defence of Carillion’s involvement with Queen Alexandra Hospital. Hodge accused Herzberg of making a “hefty great profit out of it”, leaving the hospital to take out a £13m and plunge into deficit. Herzberg responded that problems with “customers paying their bills” were due to the health service’s unsuitability.
Hodge fumed:
“PFI feels like a rotten deal, for the taxpayer and the citizen… how can you end up being locked into massive payments which pre-empt your priorities? The current scheme rips us off.”
Herzberg pleaded to the committee about the scrutiny being put on PFI, saying it was “very uncomfortable” as “authorities are scrutinising us very closely”.