Private Financing of Public Infrastructure Projects

British governments decided that they could proceed more quickly with major capital projects, such as new transport infrastructure, if they allowed some or all of the funding to be privately provided by the contractor.  They then paid a long-term rental (and profits).  These contracts were described in a BBC article, What are Public Private Partnerships?, and included risk-sharing ‘Private Finance Initiatives (PFIs)’.

Following concern about whether PFIs were delivering value for money for the taxpayer, Parliament’s Public Accounts Committee published a report: Private Finance Initiatives inquiry.  It found that “Public Private Partnerships were relatively expensive, with initial finance for projects costing up to 5% more than publicly-funded initiatives”; in October 2018, the government responded by announcing that it would no longer use PFIs.

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, avoided criticism under the EU’s ‘Excessive Deficit Procedure (EDP)’ rules which enforced budgetary discipline (Document 12008E126).  Given that governments can borrow money more cheaply, it is hard to avoid the conclusion that financing projects in this way was driven by political laziness. Governments should be prepared to defend making investments, which should not be regarded as part of their ‘structural deficit’ (, rather than try to hide them behind expensive Public Private Partnerships.



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