Private Finance Initiative

From Academic Kids

The Private Finance Initiative specifies a method, developed initially by the United Kingdom government, to provides financial support for "Public-Private Partnerships" (PPPs) between the public and private sectors. This has now been adopted by parts of Canada, France, the Netherlands, Portugal, Ireland, Norway, Finland, Australia, Japan and Singapore (amongst others) as part of a wider reform program for the delivery of public services.

These projects aim to deliver all kinds of works for the public sector, together with the provision of associated operational services. In return, the private sector receives payment, linked to its performance in meeting agreed standards of provision.



PFI is used in central and local government. In the case of projects procured by local government authorities, the capital element of the funding enabling the local authority to pay the private sector for these projects is given by central government in the form of what are known as PFI "credits". PFI is basically just a different way of purchasing. The local authority does the buying, just as it does at present.

Each PFI project is different depending on local circumstances. However there are some common threads that run through all projects. The public sector authority signs a contract with a private sector "Operator". During the period of the contract the Operator will provide certain services, which are currently provided by the local authority. The Operator is paid for the work over the course of the contract and on a "no service no fee" performance basis. The authority will design an "output specification" which is a document setting out what the Operator is expected to achieve. If the Operator fails to meet any of the agreed standards it will lose an element of its payment until standards improve. If standards do not improve after an agreed period, the public sector authority is entitled to terminate the contract.

The National Audit Office scrutinises public spending on behalf of Parliament and is independent of Government. It provides review reports on the value for money of many PFI transactions and makes recommendations. The Public Accounts Committee and Audit Commission also provide reports on these issues.


The Private Finance Initiative was begun under the Conservative government of John Major in 1992. It immediately proved controversial, as it was perceived by critics as a back-door form of privatisation. Nonetheless, the Treasury found the scheme advantageous and pushed Labour to adopt it after the 1997 general election. PFI has continued and, indeed, expanded under Labour. This has been strongly criticised by many trade unions and elements of "Old Labour". The 2002 Labour Party Conference passed a vote against PFI, though this did not change the government's policy.

According to Treasury and NAO reports that PFI deals are very much more likely to be delivered on time and on budget - a study by the Treasury in July 2003 [1] ( showed that the only deals in its sample which were over budget were those where the public sector changed their minds after deciding what they wanted and from whom they wanted to buy it. There is a far greater visibility of long-term consequences of decisions made by politicians and civil servants through PFI deals than conventionally where most of the long-term consequences and obligations of decisions are obsured from public scrutiny. As against that, however, there have been a number of high-profile PFI failures, many of which have been exposed by Private Eye, a British satirical magazine.

See also


External links


  • HM Treasury's PFI home page [2] (
  • UK National Audit Office review reports of individual PFI projects [3] (
  • UNISON PFI Research and Campaign [4] (


  • UK Parliament research paper on PFI (2001) [5] (
  • PricewaterhouseCoopers (2001), "PPPs - A Clearer View" [6] (
  • Institute of Public Policy Research paper: "Building Better Partnerships - Commission on Public Private Partnerships" (June 2001) [7] (
  • 2004 Report on PFI ( by BBC Radio 4's File on four (full transcript ( - PDF format).
  • Northern Ireland Audit Office report (2004) into PFI in the health sector [8] (



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