Private Financing of Public Infrastructure

Private financing of public infrastructure lets governments use private capital and avoid upfront costs but it is poor value for money.

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 highly critical report: Private Finance Initiatives inquiry.  This report stated that “It is unacceptable that after more than 25 years the Treasury still has no data on benefits to show whether the PFI model provides value for money”.

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 private financing of public infrastructure 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.



This page is intended to form part of Edition 4 of the Patterns of Power series of books.  An archived copy of it is held at https://www.patternsofpower.org/edition04/3535a.htm