The private finance initiative: the uk experience

Abstract

This chapter has outlined some of the issues involved in the evaluation of the private finance initiative (PFI) experience in the United Kingdom (UK). The author argued that if PFI does give rise to additional investment, then that comes not from finding some additional sources of finance but rather through a political decision which views equivalent expenditures on PFI and on “conventional” public sector investment from a different accounting perspective. Further, the cost of finance under PFI is likely to be greater than it is under “conventional” public investment. This means that the cost in terms of public expenditure of PFI is significantly greater than “conventional” public investment. The claimed efficiency gains of PFI over “conventional” public investment appear to arise predominantly from the pricing of risk in the public sector comparator (PSC) and from the perceived overrun of costs under “conventional” public investment.