PPP and PFI: the political economy of building public infrastructure and delivering services

Abstract

The Labour government of 1997-2010 used various forms of public-private partnership (PPP) to build schools, hospitals, prisons, and diverse other items of infrastructure, drawing in sub- stantial private capital; it also out-sourced many public services to private providers. This paper starts by reviewing the scale of these activities, and the forms of private-sector engagement that were involved. It then considers the political economy of these forms of 'privatization' to understand why and how these methods came to be chosen, including considering what might have happened without private-sector involvement. The effectiveness of PPP and the Private Finance Initiative (PFI) in terms of delivering government objectives and providing infrastructure and services efficiently are examined, taking account of private-sector returns on capital, implications for public spending (including future deficits and debt), the treatment of risk, the provision of incentives to deliver projects to cost and on time, and various other issues. The paper concludes by assessing how far the Labour government's PPP and PFI programmes can be regarded as successful (and according to what criteria).