Latest reforms run same risk of poor value for money as PFI, says select committee

A committee of MPs has accused the government of risking wasting more government money on construction procurement, in the latest development in a deepening spat between MPs and the government over PFI.

Treasury Select Committee chair Andrew Tyrie (Conservative) today said the exploration by the government of new forms of financing, unveiled in the National Infrastructure Plan, ran the same risks of providing poor value for money as PFI.

He said the committee had also asked for a formal explanation from the government of why the Treasury reportedly blocked a Transport for London request to avoid using PFI to fund the cost of procurement of rolling stock for Crossrail.

In a written reaction to the government’s formal response to its PFI report, the committee said the government’s approach posed risks “which could crystallise into calls on public funds.”

It added: “The creation by the back door of new forms of financing which carried some of the defects of PFI would not be the right way forward.”

The committee first published its report into PFI last July, but only now has the government’s response to that report been published. Unusually, the committee also published a riposte to the government’s response.

The select committee has been at the forefront of criticisms of the PFI method of procurement, which it says has provided poor value for money in comparison to projects paid for directly by the state.

The government said the Treasury is undertaking a full review of value-for-money guidance around PFI schemes, with revised guidance to be published this year.

But the committee accused the government of failing to properly address whether the ability of PFI schemes to sit ‘off’ the government’s balance sheet played a role in deciding whether PFI was used or not.

It said: “The Treasury’s response is inconsistent about whether accounting considerations play a role in financing decisions. The government will need to make clear in due course whether its eventual proposals constitute a new form of off-balance sheet finance.”

Andrew Tyrie said he was “pleased” the government had taken on many of the conclusions in the committee’s report, but he said the government “must be cautious about taking on further contingent liabilities or providing guarantees that could lay additional costs at the door of future taxpayers”.

“the committee made recommendations, but the government’s proposals fall short of these.

“The [government’s] response does not fully address our argument that the system of national accounting continues to provide an incentive to use PFI because such liabilities are excluded from Public Sector Net Debt.

“We must avoid using PFI solely as a means of placing government finance off-balance sheet. Value for money is crucial.”

The committee, which delayed publication of the government’s response to its report until it had prepared today’s riposte, said it will be writing to the government over the Crossrail issue.

In addition it said the government had to explain how the Waste Infrastructure Credits mentioned in the government’s Infrastructure Plan differ from PFI. The government abolished PFI credits in 2010 as they were seen as an unfair incentive for individual departments to choose PFI financing over other methods of procurement.

In its response to the committee’s original report, the government said: “The government shares the committee’s concerns that PFI projects should only be undertaken when they demonstrate value for money for the taxpayer.

“We agree that projects should only be approved on the basis of strong evidence that the benefits of risk transfer to the private sector outweigh the additional cost of private finance.”