The Government is using private sector money to keep
infrastructure spending ‘off balance sheet’ - even where this
appears to be poor value, argues a new report.
Published today by the Institute for Government
(IfG), Public versus private: how to pick the best
infrastructure financing option, says the way the Government
assesses options and allocates money means it favours private
finance to deliver infrastructure. While politically attractive
in the short term, off balance sheet private sector money will
not always deliver the best deal in the long run.
Private finance contracts have been delivered on time and budget,
but private finance initiative (PFI) contracts for waste services
and megaprojects such as Metronet show how badly financed
infrastructure projects can deliver poor results. Successive
governments have not fairly compared public and private borrowing
and have failed to collect the evidence needed to make good
decisions on whether to pursue public or private financing in the
future.
Despite the lack of evidence on the effectiveness of private
finance, the Government still expects private investors to raise
over 60% of the finance for future projects.
The Government must change the way it accounts, appraises and
budgets for infrastructure. The report specifically recommends
that the Chancellor set a target of spending 1% of GDP annually
on infrastructure in the Spending Review. He should also remove
the arbitrary exclusion of private finance from the National
Infrastructure Commission’s remit.
Nick Davies, Associate Director at the Institute for Government,
said:
“Successive governments have had a clear bias for private finance
when it comes to infrastructure. This is despite limited evidence
for the benefits of private finance, with examples of the public
sector buying out collapsing private finance contracts, such as
those used to maintain and renew London Underground’s
infrastructure. With private finance once again politically
controversial, it’s crucial that the Government makes evidence
based financing choices. Private finance should be used when it
is better value, not solely when it is off balance sheet.”
ENDS
Notes to editors
- The full paper - Public versus private: how to pick
the best infrastructure financing option – is
attached
- This paper is the latest in a
series on improving infrastructure decision making in
the UK.
- The Institute for Government is an independent think tank
that works to make government more effective.
