Public Private Partnerships – surely not again!

I thought I wouldn’t need to write about PPP ever again. However, as the Chancellor is considering private finance for new infrastructure projects, a new generation of politicians and officials must be reminded of this bonkers idea.

 

A Public-Private Partnership (PPP) is a funding model for public infrastructure projects. It is an umbrella term for schemes like the Private Finance Initiative in the UK. It encompasses schemes such as the Hub programme and the Non-Profit Distributing (NPD) model in Scotland. The Tories invented PPP, although the Blair/Brown governments massively expanded it. The SNP came to power in 2007 and committed to ending these schemes but simply rebranded them through the work of the Scottish Futures Trust. Even the Tories abandoned them for new projects in 2018.

The Chancellor is considering such models because of the fiscal pressures the UK is currently under. They are proposing to tweak the model with the introduction of ‘value-for-public-money’ clauses. This test looks similar to those in the old model, which was easily circumvented. PPPs claim to offer a way to avoid tax rises (in the immediate) and break fiscal rules. However, whilst PPPs provide a way to get around short-term budgetary rules, they simply push expenditure forward and pressure revenue budgets. New Labour era ministers promote the model despite admitting it ‘is not without its shortcomings’. The industry is already salivating over the prospects of easy profits while claiming they have learned the lessons of PFI.

 

The evidence against using PPP is extensive. This briefing sets out the major problems and risks the UK has encountered through its extensive experiment with PPPs, including how they have:

·       Cost the government more than if it had funded the public infrastructure by borrowing money itself

·       Led to large windfall gains for the private companies involved at public expense

·       Enabled tax avoidance through offshore ownership

·       Led to declining service standards and staffing levels

·       Hollowed out state capacity to design, build, finance and operate infrastructure

·       Eroded democratic accountability

 

This is not just about historical costs; the price continues to be paid. PPP projects in Scotland typically run for 25-30 years, and you can view the cost for each legacy project here. In the UK, over 700 projects have been built using PFI since the early 1990s, worth around £60 billion. They distributed £300 million in dividends to investors from £1 billion in profits between 2005 and 2022. As NIESR points out, “We are spending far more in PFI repayments than the value of the assets and are locked into these contracts for decades to come. Most households wouldn’t take out loans on terms like this, so why did the public sector?”

A study of parliamentary inquiries into PPP scandals examined a consistent pattern of wrongdoing. Over the past decade and a half, billions of taxpayers’ funds have been unaccounted for. This appears to be mainly because private interests have been prioritised over public needs. Other findings showed that companies regularly reduced the quality of a service to maximise profits. Companies sometimes breach the terms of their public-private contracts because it’s in their economic interest. This even has a name – economists call it ‘efficiency breach’. As many of these contracts come to the end of their life, buildings are being handed back with huge maintenance bills.                               

Successive opinion polls show that the public wants essential public services to be nationalised, not handed over to private companies to make rip-off profits. The hard lessons of the past should not have to be relearned. We already know that taxpayers and consumers will pay the price.