Treasury Select Committee calls on government to stall procurement of £450m Liverpool hospital

A high-powered committee of MPs has attacked the government’s “extremely inefficient” use of PFI funding and called on it to stall procurement of a £450m PFI hospital in Liverpool.

The Treasury Select Committee branded the model “poor value for money” in a report published following its inquiry into PFI in July.

The MPs also called on the coalition to stall procurement of the Royal Liverpool hospital to run the rule over its costs.

Carillion and Interserve were last month named as the final two bidders on the scheme, which has been used as a case study in the MPs’ report.

The report also highlighted soaring borrowing costs, with the average cost of capital for low risk PFI projects standing at 8% - double the rate of government borrowing.

Analysis contained in the report suggests paying off PFI debt of £1bn could cost taxpayers the equivalent of paying off direct government debt of £1.7bn.

The report concluded: “We believe that a financial model that routinely finds in favour of the PFI route, after the significant increases in finance costs in the wake of the financial crisis is unlikely to be fundamentally sound.”

“We do not believe that PFI can be relied upon to provide good value for money without substantial reform.”

Andrew Tyrie, the Tory MP who chairs the committee, said: “PFI means getting something now and paying later. Any Whitehall department could be excused for becoming addicted to that.

“We cannot carry on as were are, expecting the next generation of taxpayers to pick up the tab. PFI should only be used where we can show clear benefits for the taxpayer.”

But the CBI defended the use of PFI, saying it was “absolutely essential” for continued investment in public building projects.

Dr Neil Bentley, CBI deputy director-general, said:”The Committee’s report is right to say lessons from the past need to be heeded, and PFI must only be used when it is appropriate and offers the best value for money.

“But with the state of the public finances, it is absolutely essential we attract the billions of pounds of private finance needed to upgrade our national infrastructure and boost jobs and growth.

“To do this, investors need confidence, and the Government must decide sooner rather than later how PFI will evolve, alongside a range of alternatives, such as Tax Increment Funding and Pension Fund Financing.

“It’s worth remembering that without PFI we would not have seen hundreds of much-needed hospitals, schools and homes delivered on time and within budget.”