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PFI: costs and benefits

Published Wednesday, May 13, 2015

The use of PFI contracts is controversial. This note considers the arguments for the costs and benefits of PFI, as well as looking at changes to PFI under the coalition government.

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The Private Finance Initiative (PFI) was first introduced in the UK in the early 1990s, and was later expanded under the Labour government. As of March 2014, there were 728 active projects and a further 11 projects in procurement.

There is a lack of consensus on whether PFI projects offer value for money and it remains a controversial scheme. Supporters of PFI argue that risk is transferred to the private sector and that its performance is better than that of traditional public procurement. On the other hand, PFI is criticised for being inflexible and carrying higher costs. It is also argued there is scope for making savings in PFI projects.

PFI was used widely by departments in the period leading up to its peak in 2007/08. Its use has declined since, following the financial crisis and tighter banking regulations.

A major reform on PFI was announced by HM Treasury in 2012, resulting in the creation of Private Finance 2 (PF2). PF2 is a form of PFI but with a number of amendments. It was designed to speed up and simplify the procurement process. To date, only a small number of projects have been agreed to under the new regime.

Commons Briefing papers SN06007

Authors: Lorna Booth; Vasilisa Starodubtseva

Topic: Public expenditure

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