The economics of ending PFI

Private Finance initiative deals are a source of significant public sector savings – when they are cancelled – says David Hall.

While the media and professional classes in Britain have remained broadly Thatcherite in their views of public ownership and public finance, public opinion itself has consistently been ambivalent or hostile to private ownership and private finance in the public service domain. The June 2017 election and later surveys showed widespread support for the Labour Party’s new commitments to public ownership of water, rail and parts of the energy system.

The Labour party conference in September 2017 confirmed the policy of public ownership of utilities, and then adopted a new commitment to completely bury the Private Finance Initiative (PFI) – the off-balance sheet system which was used, principally by the Labour governments of the 1990s and 2000s, to fund infrastructure whilst avoiding the appearance of public sector debt, even at the expense of much higher long-term costs.

Shadow Chancellor John McDonnell not only restated that there would be no new PFI schemes under a future Labour government, but also confirmed that it would nationalise the special purpose vehicle (SPV) companies at the heart of existing PFI schemes, thus bringing all operations into the public sector.

A background briefing stating that there would be a review of the current deals to identify schemes meriting termination caused confusion. And media reports focused on claims that a policy of ending all PFI schemes would cost £56 billion (or more) for the NHS schemes alone – and would therefore be unaffordable.

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