State infrastructure projects may be funded by private capital through PFI (private finance initiative) contracts.This week, BBC Radio’s File on Four put great effort into addressing the question: ‘Have taxpayers lost billions of pounds in the secretive resale of PFI contracts?’
‘Secretiveness’ in reselling was the primary focus of a forty minute presentation that was accompanied by such nerve-touching phrases as: ‘money has gone offshore’; ‘huge profits have been made’; and ‘none of the proceeds are returning taxpayers’. File on Foursupported its theme with comments by Margaret Hodge, Chair of the House of Commons Public Accounts Committee (PAC) who was adamant that: ‘if there is some profit, that profit can been shared between the taxpayer and the investor’.
By what argument ought private ‘profit’ to be shared?
The resale of a PFI contract is but a particular example of a commonplace activity; that is, the capitalisation of an annuity, which is to take a lump sum instead of a regular payment. Alternatively a lump sum can be used to purchase an annuity. Such issues occupy thousands as they face pension options on retirement. In a different context, when fiscal deficit spending is supported by the sale of government bonds, those acquiring bonds effectively convert a lump sum (determined by the market price of the bond) into their entitlement to an annuity; and those same bold-holders can subsequently reverse that process by reselling those ‘contracts’.
So, in principle, there is nothing dastardly in reselling a PFI contract.
In its report of January 2011, the PAC cited the lack of any ‘clear evidence of whether PFI is any better or worse value for money than other procurement routes’. By the current posturing of Margaret Hodge, it is those original deals, not the reselling, that might now be seen to have sold taxpayers short.
‘Have taxpayers lost billions of pounds by the original terms of PFI contracts?’ The most obvious answer here is, ‘Yes, they probably have’. Just as they have lost billions with inept procurements through many other routes. Quite simply and generally: ‘no situation is so bad that government intervention cannot make it worse’; but a bad decision is no basis for the state to cry foul in demanding compensation.