The NAO report last week on the Private Finance Initiative (PFI) and the collapse of Carillion has led us to focus on PFI in this week’s chart.
That PFI financing is more expensive than government borrowing for new infrastructure is a well rehearsed line.
Actually more important, was the NAO’s main finding that the Treasury has not carried out a formal assessment of whether these additional financing costs have been worth it or not.
While the NAO did highlight some particular instances of poor value for money, we still don’t really know if PFI contracts have been a success overall. Especially in comparison with the potential cost overruns and inefficiencies that often dog traditional public sector projects.
The £199bn (2017) still to pay on the portfolio of 716 PFI deals is a fairly small part (5%) of the state’s £3.7trn liabilities. Few new PFI contracts are being signed, so future PFI payments are likely to reduce significantly over the next decade or so.
Today’s portfolio should reduce by around a quarter by the time of the next general election in 2022, and by around half in a decade from now.
Despite this, the level of political controversy over PFI is unlikely to go away, but that is politics rather than accountancy!