Treasury refuses to calculate profits made by PFI investors

Department says the calculation would require “significant time and investment” to calculate returns and would not be proportionate

Photo: PA

By Richard Johnstone

10 Oct 2018

The Treasury has rejected a call from the Public Accounts Committee to calculate the returns investors have made from Private Finance Initiative projects, saying that the cost of the exercise would be too high.

In a report examining the use of the PFI, and its successor PF2 introduced in 2012, MPs said it was “unacceptable” that the Treasury has no data on the benefits of PFI, despite more than 25 years of the funding method being used to build schools and hospitals around the country.

After examining the use of the finance model, where central and local government use private contractors to build and maintain public infrastructure and then pay an annual fee to use it, MPs recommended that the Treasury should calculate the returns to originating PFI equity investors when they sell on their stake.


This information should include the domicile of project equity holders, as well as a calculation of the impact a reduced tax take would have had on the original project value for money tests. The information should be used to inform pricing for investment in future projects, the committee said.

However, the Treasury rejected this recommendation. It highlighted that reforms introduced with PF2 aimed to provide greater transparency about the returns that investors in the schemes will make. Investors in previous PFI schemes are not required to make such disclosures.

“As such, it would not be proportionate to calculate returns on the sales of PFI equity because this would require Treasury and IPA to collect years of data at company level from the unlisted secondary market,” the government response to PAC said. “This would not be a short-term exercise and would require significant time and investment.”

The Treasury also denied the committee’s contention that the government remained determined to keep PF2 projects off its balance sheet so they did not count towards government debt levels.

Under PF2, the public sector owns a share of the project delivery company which means it also shares any savings made when providers lower their costs of borrowing through refinancing.

The Treasury has cut the maximum gainshare arrangement from 50% to just 33% – a move that the committee claims is to ensure projects are classified as off balance sheet under national accounting rules, since the higher percentage made it more likely PF2 schemes would count towards UK debt.

This trade-off is being made even though the MPs highlighted that “ministerial submissions have stated that the Treasury has recognised that this change will have a negative impact on value for money”.

The committee called on the Treasury to write to the committee before any new PF2 deals are signed to demonstrate how the decision to go ahead with the funding model were not influenced by the balance sheet treatment.

However, the Treasury disagreed with this recommendation, insisting it has “always been clear in guidance to departments that it is value for money and not the budgeting treatment, which is the key determinant of whether a PF2 scheme should go ahead”.

It stated that its strict scrutiny process ensures any decision to use private finance is only made where it can be demonstrated to provide value for money over conventionally procured alternatives.

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