PPP Factsheet 1 - Private Finance: A Critique

• The economic justification for PFI/PPP, that they lever in extra money, is flawed. PFI is a form of financing, through borrowing. It is not funding.

• PFI/PPP are more expensive to finance, involve high transaction costs and require a rate of return to investors. These costs are not necessarily offset by greater efficiencies. 

• The transfer of risk to the private sector in PFI/PPP schemes is problematic: there is debate about how risks are assessed and quantified; there are doubts about the real degree of transfer in some cases; the risk ultimately remains with the public sector when services can not be allowed to fail. 

• The comparison between the PFI/PPP scheme and a (usually) hypothetical public sector one is problematic - it is subjective and often has built in assumptions that favour the privately funded scheme. 

• There is nothing inherent to PFI schemes that guarantee greater innovation or efficiencies. The public sector can perform equally well when there is funding stability and good procurement practices. 

• There is no clear evidence yet, either way, that bringing in the private sector will improve poor services. There is evidence, however, of major problems and service failure following externalisation, particularly in the outsourcing of benefit services. 
• The case made for private finance and delivery of public services needs to be based on evidence and not assertion.

There are various claims made to justify the growing dependence in the public sector on private finance for investment. There are also claims made for thebenefits to services of using the private sector to deliver them. This factsheet briefly considers the evidence. The factsheet on risk transfer goes into more detail about the economics of PFI.

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FACTSHEETS PREPARED FOR GMB BY THE LGIU