Private Finance Initiative (PFI)
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Private Finance Initiative (PFI) A2 Microeconomics - 2014
description
Private Finance Initiative (PFI) changes model of funding for large-scale investment projects First launched in 1992 by a Conservative government and was extended heavily by the Labour government of 1997-2010. By 2011, more than 700 hospitals, schools, prisons and other public sector projects had been built under the PFI scheme Encourages private investors manage the design, build, finance and operation of public infrastructure such as new schools, hospitals, social housing, defence contracts, prisons and road improvements. Typical PFI contract repaid by government over 30 year period
Transcript of Private Finance Initiative (PFI)
Private Finance Initiative (PFI)
A2 Microeconomics - 2014
Basics of the PFI
• Private Finance Initiative (PFI) changes model of funding for large-scale investment projects
• First launched in 1992 by a Conservative government and was extended heavily by the Labour government of 1997-2010.
• By 2011, more than 700 hospitals, schools, prisons and other public sector projects had been built under the PFI scheme
• Encourages private investors manage the design, build, finance and operation of public infrastructure such as new schools, hospitals, social housing, defence contracts, prisons and road improvements.
• Typical PFI contract repaid by government over 30 year period
PFI Project Examples
Source: http://en.wikipedia.org/wiki/Private_finance_initiative
PFI Projects
Under a Private Finance Initiative (PFI) project:1. Government takes bids for and then buys a whole
project package2. Project package typically includes construction,
services and maintenance3. The government pays back the costs of the whole
project over time
Alder Hey - Liverpool
The new £167m hospital, which is being built on behalf of Alder Hey Children’s NHS Foundation Trust, will have a floor area of 51,000m2, and will contain 270 beds and 16 state of the art operating theatres. 75% of bedrooms will be single occupancy with en-suite bathrooms, improving privacy and dignity for patients and their families. The official opening of the new hospital is planned for Autumn 2015
Case for Private Finance
Efficiency: Is the private sector more efficient at
delivery?
Extra investment - brings long term
economic and social benefits
Delivery: The private sector is not paid until
the asset has been delivered – fixed price
contracts
Dynamic efficiency – innovation, is there better design from
leading private sector businesses?
Case for Private Finance
Efficiency: Is the private sector more efficient at
delivery?
Extra investment - brings long term
economic and social benefits
Delivery: The private sector is not paid until
the asset has been delivered – fixed price
contracts
Dynamic efficiency – innovation, is there better design from
leading private sector businesses?
Case for Private Finance
Efficiency: Is the private sector more efficient at
delivery?
Extra investment - brings long term
economic and social benefits
Delivery: The private sector is not paid until
the asset has been delivered – fixed price
contracts
Dynamic efficiency – innovation, is there better design from
leading private sector businesses?
Case for Private Finance
Efficiency: Is the private sector more efficient at
delivery?
Extra investment - brings long term
economic and social benefits
Delivery: The private sector is not paid until
the asset has been delivered – fixed price
contracts
Dynamic efficiency – innovation, is there better design from
leading private sector businesses?
Criticisms of PFI Project Approach
Debt costs: financing costs of PFI typically 3-4% over that of government debt
Inflexibility and poor value for money: Long service contracts difficult / costly to change
Risk: The ultimate risk with a project lies with the public sector (government
PFI has added to public sector debt but created many private sector fortunes
Criticisms of PFI Project Approach
Debt costs: financing costs of PFI typically 3-4% over that of government debt
Inflexibility and poor value for money: Long service contracts difficult / costly to change
Risk: The ultimate risk with a project lies with the public sector (government
PFI has added to public sector debt but created many private sector fortunes
Criticisms of PFI Project Approach
Debt costs: financing costs of PFI typically 3-4% over that of government debt
Inflexibility and poor value for money: Long service contracts difficult / costly to change
Risk: The ultimate risk with a project lies with the public sector (government
PFI has added to public sector debt but created many private sector fortunes
Criticisms of PFI Project Approach
Debt costs: financing costs of PFI typically 3-4% over that of government debt
Inflexibility and poor value for money: Long service contracts difficult / costly to change
Risk: The ultimate risk with a project lies with the public sector (government
PFI has added to public sector debt but created many private sector fortunes
Cross Rail – PFI Ditched in 2013
In 2013 the UK government scrapped plans to procure the Crossrail rolling stock as a private finance initiative and instead decided to finance it fully on Transport for London’s balance sheet. That decision was prompted by concerns about how long it had taken to get previous PFI train deals financed, including Thameslink
