Headlines: September 27th, 2002

Prime Minister, Tony Blair, in a vigorous defence of the public finance initiative insists that the new hospitals and schools being built under PFI are being delivered on time and within budget. He said he will not allow unions to have a veto on reform and even more must be done to encourage private sector involvement in the provision of public services.He argued that PFI has delivered on time and within budget, something that public sector-led investment projects seldom managed to achieve. There are more than 400 PFI contracts, worth more than 100 billion pounds in force or in the pipeline.This defence of PFI follows an attack on union objections from the Chancellor, Gordon Brown, and the Deputy Prime Minister, John Prescott. The unions are accused of putting at risk the benefits to patients, passengers, and school students by calling for a moratorium on the private finance initiative. It was made clear that there would be no backing down and no moratorium.

Despite this defence of PFI, there is growing opposition to its use to fund capital investment in public services. A Guardian/ICM poll showed that 63% of respondents supported the unions’ call for a review into the effectiveness of PFI and a moratorium on new schemes.

The unions counter the claim that projects are delivered more quickly by showing that its takes at least one year to produce a business case and select a preferred bidder and then a further year to negotiate with the preferred bidder. They also argue that all investment, public and private, is usually borrowed from the same private money markets, but the public sector can borrow at 2-4% lower rates than the private sector. PFI projects also incur additional costs because of their complexity and 8% can be added to meet the fees of advisers. They also challenge the claim that risk is transferred to the private sector under PFI. In cases of failure such as Channel Tunnel Rail Link; National Air Traffic Control and the Royal Armouries Museum, the risk remained with the public sector.