(This is an archived extract from the book Patterns of Power: Edition 2)
In a similar way to choosing an organisation to deliver public services, it is also possible to make choices of organisation to deliver major capital projects, such as new transport infrastructure. A government can proceed more quickly if it allows some or all of the funding to be privately provided by the contractor; it then pays a long-term rental (and profits).[1] There have been mixed perceptions about whether these were successful in Britain.[2] In purely economic terms it is not possible to calculate what would have happened if these privately-financed projects had waited for public funding. An extended obligation to pay rent for a project is a form of debt that avoids being classified as such – and thereby, for the UK, avoids criticism under the EU rules for budgetary discipline.[3] It has been argued that the British choice of financing projects this way was driven by political expediency rather than by the best interests of the country.[4]
© PatternsofPower.org, 2014
[1] The British approach was called ‘Public Private Partnerships (PPPs)’, and included risk-sharing ‘Private Finance Initiatives (PFIs)’. A BBC article explaining both these concepts, entitled What are Public Private Partnerships?, was available at http://news.bbc.co.uk/1/hi/uk/1518523.stm in April 2014.
[2] An example of critical comment was published on 18 December 2009 by The Guardian, entitled Tube PPP reaches the end of the line; it was available in April 2014 at http://www.guardian.co.uk/commentisfree/2009/dec/18/tube-ppp-upgrade-london-underground.
[3] An annex to the EU’s Maastricht Treaty defined the Protocol on the Excessive Deficit Procedure (EDP) “obliges Member States to comply with budgetary discipline by respecting two criteria: a deficit to GDP ratio and a debt to GDP ratio not exceeding reference values of 3% and 60% respectively”. A one-page summary of the EDP was available in April 2014 at http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/excessive_deficit
[4] A PSIRU article in October 2008 making this allegation, entitled PPPs in the EU – a critical appraisal, was available in April 2014 at www.psiru.org/reports/2008-11-PPPs-crit.doc.