No private profit from this public service

10th March 1995 at 00:00
Howard Davies is disingenuous in his response (TES, February 17) to Ted Wragg's attack on the Private Finance Initiative (PFI).

Of course Ted exaggerates. And, of course, we all agree with Howard about the shameful failure of investment in education; and the need for the worlds of education and work to co-operate. No doubt most would also agree that better utilisation of capital assets is generally a good thing. However, none of this is unique to the PFI.

The central proposition of the PFI is an invitation to the private sector to participate directly in public works - in the expectation of a cash return on capital - as a substitute for public investment. Obviously there will be a saving of interest otherwise payable on public borrowing; but the Government can command much more favourable rates than entrepreneurs will expect from direct investment. Thus private finance is intrinsically more expensive than ordinary public investment.

The key question that Ted so colourfully poses is: in a free public service such as education, where is that cash return to come from?

There are a number of official answers. First, private-sector experience is said to bring greater effi ciency so that there will be scope both for private profit and a lower cost for the taxpayer. Unfortunately, as The Economist has recently revealed, no one has ever managed to prove this assumption. Travellers to Paris on the EuroStar - trundling at 40mph over the British track, for which no private finance has yet been forthcoming, before rushing smoothly over the new, publicly-provided, chemin de fer on the other side - may feel that the opposite might be the case!

The second suggestion is that private investors are not constrained by Treasury rules governing public finance. This is true enough, but it is an odd justification. If the rules serve a purpose they should apply equally to any project. If not they should be changed. These rules are made by the same ministry that is promoting the PFI.

As a free service education offers no scope for generating income from its core business - except in so far as a governmental agency acts as a purchaser. Any external return from private investment must derive from commercial activities on the fringes of the main activity. There is some scope for this in parallel uses for school assets, buildings, equipment and staff expertise. There are equally obvious dangers that the pressure to make money will distort decisions that should be taken on educational grounds; and that the difficulty in apportioning costs between "education" and "commercial" activities will lead to hidden subsidy. If such activity is to take place, is it not better that it should be organised so that there can be no distraction from a school's mission and that all profits are ploughed back?

Until someone can offer some more convincing answers, I will continue to agree with the objectives identified by Howard Davies but share Ted Wragg's scepticism about the PFI as a suitable means of achieving them.

ALAN PARKER Education officer Association of Metropolitan Authorities London SW1.

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