Fairies can be found in the PFI garden

15th December 2006 at 00:00
Andy Kerr, the Health Minister, claimed the researchers who published the study on public private partnerships did not understand public sector finance.

As a former civil servant, I have some knowledge of public sector finance and beg to differ. Will the minister not admit that private borrowers have to pay a higher interest rate than a public authority?

What used to be called a private finance initiative is now called a public private partnership, although the minister still uses the phrase "privately financed projects".

These phrases are misleading, in that they imply the private company is putting its own money into the provision of a school or hospital. It does nothing of the sort. It is not there to subsidise public buildings but to secure profits for its shareholders. It would be more correctly called a private borrowing initiative. The private company always recoups the full cost of its borrowing from the charge it makes to the public authority.

PFI and PPP transfer the cost of a project from the capital to the revenue account. This makes the borrowing look smaller, but in no way decreases the public cost.

On the contrary, it increases the public cost, both by the increased cost of interest and by the fact that the public authority is tied into a 30-year maintenance contract with a firm which owns the building.

The authority cannot go out to competitive tender for a project on a building which it does not own. That is why the Edinburgh University research is correct to point out that PFIPPP is bound to be more expensive in the long term.

If the minister believes that best value for the taxpayer can be obtained by negotiating with a single contractor, rather than by going out to competitive tender, then there are, indeed, benevolent fairies at the bottom of the PFIPPP garden.

Ronnie Cramond

Oswald Road

Edinburgh

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