An End to PFI/PF2

On 29th October 2018, Philip Hammond delivered a Conservative Budget declaring an end to austerity and outlining plans for a post-Brexit economy. Amidst his speech was the announcement that the government will finally end the Private Finance Initiative (PFI/PF2) on the basis of ‘compelling evidence’ that it does not deliver value for money or transfer risk to the private sector, as proclaimed by the Conservatives and their political predecessors.

Hammond also stated the government’s commitment to honouring its existing contracts. What the Chancellor omitted is the scale of the legacy PFI leaves behind; the 700 existing PFI and PF2 deals will cost the taxpayer an estimated £199 billion by the 2040s. These staggering costs, and the political opacity surrounding PFI, have attracted expert criticism and public outrage. I argue, however, that the PFI saga amounts to more than just an administrative scandal; it is an egregious violation of the rights of UK citizens.

Though experts have long warned of the failings of PFI, it is the high-profile collapse of Carillion earlier this year that finally forced the government to act. Carillion, one of the largest suppliers of services to the UK public sector, went into liquidation after racking up £1.5 billion in debt; largely the result of cost overruns on three public sector construction projects. But Carillion is only the tip of the iceberg. For decades, PFI has enabled companies and their shareholders to surreptitiously extract exorbitant profits from the public sector.

Introduced by John Major in 1992 and expanded zealously under New Labour, PFI is a form of procurement in which consortia of private investors called Special Purpose Vehicles (SPVs) pay the upfront costs of designing, building and maintaining public capital projects like hospitals. The public sector then leases the asset, repaying the costs plus an additional borrowing charge over a period of around 25-30 years. PFI has been heralded for providing value for money, transferring risk to the private sector, and delivering the upfront capital needed to finance large infrastructural projects.

This model was widely adopted across the public sector including the NHS, which had 127 active PFI schemes in 2017. PFI is ultimately expected to cost the health service in excess of £79 billion. Repayments have led to hospital closures and trust bankruptcy. A case in point is Britain’s biggest health trust, Barts Health NHS Trust, which was placed in special measures after struggling to pay off a 43-year PFI deal that cost £7bn, far in excess of its £1.1bn capital value.

Alarmingly, successive governments have continued to pursue and even expand PFI despite the lack of empirical evidence of its benefits (.PDF). Instead, support for PFI can be seen as part of a broader movement towards NHS privatisation over the last 40 years, driven primarily by a neoliberal agenda rather than the needs of patients. The rhetoric of value for money that has sustained PFI for over 25 years has concealed systematic wealth extraction from the public sector.

This kind of misuse of public funding is not simply an administrative disaster; it is a violation of citizens’ rights. The UK is a party to the International Covenant on Economic, Social and Cultural Rights (ICESCR), which enshrines the human right to the highest attainable standard of health. Article 2(1) of the Covenant requires every state party to commit the ‘maximum of its available resources’ (.PDF) to achieving these rights. This means allocating sufficient funding towards fulfilment of the right to health and using this money both efficiently and effectively, including in public-private partnerships.

Politicians have hailed PFI as a mechanism for leveraging limited resources under conditions of austerity. However, assessment of its impact suggests it has largely been a wasteful and ineffective use of public resources and thus violates the government’s human rights duty to maximise available resources.

Under the right to health (.PDF), states are also legally obligated to hold government and third parties to account by establishing accessible, transparent and effective administrative mechanisms, including reviews of public policy, budgets and expenditure. In 2011, a Parliamentary Review of PFI concluded that public and private organisations were using commercial confidentiality laws to obscure the costs of PFI projects.

Furthermore, the very administrative systems and institutions tasked with holding government to account are part of problem. The categorisation of PFI expenditure as off-balance sheet has provided a perverse accounting incentive (.PDF) for governments, enabling them to mislead the public about the extent of their borrowing. Furthermore, the Treasury, which one critic described as the “neoliberal enforcement agency of the UK government”, recently rejected a recommendation to calculate the returns private investors have made from PFI. This opacity around PFI accounts is a major obstacle to effective accountability.

At best, PFI has been a costly mistake; at worst, a political con. Either way, it is a violation of the rights of UK citizens. Despite declaring an end to PFI, Hammond has stated his continuing commitment to partnership with the private sector- so what lessons can we learn from PFI?

Firstly, the NHS must provide empirical evidencethat future PPP models will not only provide value for money for UK citizens but also advance the right to health. After all, this should be the ultimate goal of any national health service. This will require greater transparency around public expenditure. The use of human rights impact assessments would ensure that partnerships deliver not only economic efficiency but also tangible public health benefits to UK taxpayers.

Additionally, the government should consider how regulatory frameworks can strengthen accountability under PPPs and be adapted to meet the demands of a fast-changing world. The NHS is currently grappling with the issue of regulating novel AI research partnerships with technology companies; the Royal Free-DeepMind controversy should serve as a cautionary warning of the risks that public-private partnerships pose to human rights.

Hammond has declared, “the days of the public sector being a pushover, must end”. This is not just a matter of political urgency; it is a legal imperative.