THERE are too many cooks trying to create Private Finance Initiative (PFI) soup without having the right expertise, according to a report from the Centre for Policy Studies.

Philippa Roe and Alistair Craig, the authors of Reforming the Private Finance Initiative, argue that specialist PFI units within each major department should replace the large number of individual sections arranging deals. “Currently there are too many government and local authority organisations involved in PFI projects. Expertise is diffuse and often dissipated,” they say. Specialist teams would be more effective at negotiating and completing deals while removing duplication.

The report says that PFI, while generally successful, is also being misused by the Government. It says that PFI may sometimes be chosen ahead of other schemes because it can be classified as “off balance sheet”, which means that the expenditure is not included in government spending and therefore does not affect its borrowing requirements.

There is also criticism of the “public sector comparator” (PSC), which is the test used to compare the cost of a PFI project with the estimated cost of the same project run by the public sector. “The PSC is subjective and has, on occasion, been subject to manipulation to ensure that contracts go ahead under PFI rather than the public sector alternative.”

The authors recommend scrapping the PSC and replacing it, where possible, with “sector-specific benchmarking” that is completed before the business case is finalised. This will allow more transparency about whether such a deal makes financial sense.

The authors advise making the Government’s financial liabilities under PFI clearer by publishing a single figure that gives the present value for all future payments to be made on PFI contracts, including those that are off balance sheet. Public private partnerships (PPPs), criticised for being “more nebulous” and involving “no transfer of risk to the private sector”, should also be included in this accounting.

“Confusingly, the Government appears to use the terms PPP and PFI interchangeably on a regular basis. This creates confusion in the public mind and should be avoided,” the authors say. The report’s other recommendations include:

www.cps.org.uk

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