As John McDonnell announces he'd bring existing PFI contracts in house, our Construction and Welsh law expert, Jeremy Williams, explores what that could mean for the sector.
When the PFI model was first developed, it was designed to keep projects off the public sector balance sheet. But, there were a series of sticking points with the PFI model, which meant that it wasn’t utilised efficiently in practice.
Wales has already refined its approach to procuring infrastructure projects. A new initiative, known as the Mutual Investment Model (MIM), provides an alternative funding structure for public-private partnership projects that would’ve previously been carried out under PFI.
The MIM avoids many of the issues Labour has identified with PFI. For example, building maintenance is only included in the management of the infrastructure project once it’s complete. Under PFI, all facility management services – like cleaning, catering and security – would’ve been included.
The MIM also doesn’t include equipment that the public purse could fund more efficiently. And, importantly, the public sector will take a share of any profits made.
We’re in a time of continuing reductions in capital spending. The key thing about MIM is that the initial capital expenditure for the project is passed onto a third party, private sector financier.
Unlike the Non-Profit Distributing Model that Scotland promoted (until the Office of National Statistics discovered it would cost the public sector), the MIM has been structured in a way to keep it off the balance sheet.
A future Labour government would bring "wasteful" PFI contracts back in the public sector, shadow chancellor John McDonnell has said. He told Labour's conference the contracts were set to cost the taxpayer £200bn over coming decades and private companies were making "huge profits". He said Labour, which has previously promised to strike no new deals, would bring PFI contracts "back in-house". Labour sources later said this meant they would "review" all PFI contracts. This means it is not clear whether all existing PFI contracts would be taken back - although shadow chief secretary to the Treasury Peter Dowd told the BBC's Daily Politics he expected the "bulk" to "come back in". The PFI model of funding public services such as new schools and hospitals was pioneered by the Conservatives in the 1990s and has continued under successive governments.