Private Finance Initiative (PFI)
A2 Microeconomics - 2014
Basics of the PFI
• Private Finance Initiative (PFI) changes model of funding for
large-scale investment projects
• First ...
PFI Project Examples
Source:
http://en.wikipedia.org/wiki/Private_finance_initiative
PFI Projects
Under a Private Finance Initiative (PFI) project:
1. Government takes bids for and then buys a whole
project ...
Alder Hey - Liverpool
The new £167m hospital, which is being built on behalf of Alder Hey
Children’s NHS Foundation Trust,...
Case for Private Finance
Efficiency: Is the private
sector more efficient at
delivery?
Extra investment -
brings long term...
Case for Private Finance
Efficiency: Is the private
sector more efficient at
delivery?
Extra investment -
brings long term...
Case for Private Finance
Efficiency: Is the private
sector more efficient at
delivery?
Extra investment -
brings long term...
Case for Private Finance
Efficiency: Is the private
sector more efficient at
delivery?
Extra investment -
brings long term...
Criticisms of PFI Project Approach
Debt costs: financing costs of PFI typically 3-
4% over that of government debt
Inflexi...
Criticisms of PFI Project Approach
Debt costs: financing costs of PFI typically 3-
4% over that of government debt
Inflexi...
Criticisms of PFI Project Approach
Debt costs: financing costs of PFI typically 3-
4% over that of government debt
Inflexi...
Criticisms of PFI Project Approach
Debt costs: financing costs of PFI typically 3-
4% over that of government debt
Inflexi...
Cross Rail – PFI Ditched in 2013
In 2013 the UK government scrapped plans to procure the Crossrail rolling stock
as a priv...
Private Finance Initiative (PFI)
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Private Finance Initiative (PFI)

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Private Finance Initiative (PFI) changes model of funding for large-scale investment projects
First launched in 1992 by a Conservative government and was extended heavily by the Labour government of 1997-2010.
By 2011, more than 700 hospitals, schools, prisons and other public sector projects had been built under the PFI scheme
Encourages private investors manage the design, build, finance and operation of public infrastructure such as new schools, hospitals, social housing, defence contracts, prisons and road improvements.
Typical PFI contract repaid by government over 30 year period

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Private Finance Initiative (PFI)

  1. 1. Private Finance Initiative (PFI) A2 Microeconomics - 2014
  2. 2. Basics of the PFI • Private Finance Initiative (PFI) changes model of funding for large-scale investment projects • First launched in 1992 by a Conservative government and was extended heavily by the Labour government of 1997-2010. • By 2011, more than 700 hospitals, schools, prisons and other public sector projects had been built under the PFI scheme • Encourages private investors manage the design, build, finance and operation of public infrastructure such as new schools, hospitals, social housing, defence contracts, prisons and road improvements. • Typical PFI contract repaid by government over 30 year period
  3. 3. PFI Project Examples Source: http://en.wikipedia.org/wiki/Private_finance_initiative
  4. 4. PFI Projects Under a Private Finance Initiative (PFI) project: 1. Government takes bids for and then buys a whole project package 2. Project package typically includes construction, services and maintenance 3. The government pays back the costs of the whole project over time
  5. 5. Alder Hey - Liverpool The new £167m hospital, which is being built on behalf of Alder Hey Children’s NHS Foundation Trust, will have a floor area of 51,000m2, and will contain 270 beds and 16 state of the art operating theatres. 75% of bedrooms will be single occupancy with en-suite bathrooms, improving privacy and dignity for patients and their families. The official opening of the new hospital is planned for Autumn 2015
  6. 6. Case for Private Finance Efficiency: Is the private sector more efficient at delivery? Extra investment - brings long term economic and social benefits Delivery: The private sector is not paid until the asset has been delivered – fixed price contracts Dynamic efficiency – innovation, is there better design from leading private sector businesses?
  7. 7. Case for Private Finance Efficiency: Is the private sector more efficient at delivery? Extra investment - brings long term economic and social benefits Delivery: The private sector is not paid until the asset has been delivered – fixed price contracts Dynamic efficiency – innovation, is there better design from leading private sector businesses?
  8. 8. Case for Private Finance Efficiency: Is the private sector more efficient at delivery? Extra investment - brings long term economic and social benefits Delivery: The private sector is not paid until the asset has been delivered – fixed price contracts Dynamic efficiency – innovation, is there better design from leading private sector businesses?
  9. 9. Case for Private Finance Efficiency: Is the private sector more efficient at delivery? Extra investment - brings long term economic and social benefits Delivery: The private sector is not paid until the asset has been delivered – fixed price contracts Dynamic efficiency – innovation, is there better design from leading private sector businesses?
  10. 10. Criticisms of PFI Project Approach Debt costs: financing costs of PFI typically 3- 4% over that of government debt Inflexibility and poor value for money: Long service contracts difficult / costly to change Risk: The ultimate risk with a project lies with the public sector (government PFI has added to public sector debt but created many private sector fortunes
  11. 11. Criticisms of PFI Project Approach Debt costs: financing costs of PFI typically 3- 4% over that of government debt Inflexibility and poor value for money: Long service contracts difficult / costly to change Risk: The ultimate risk with a project lies with the public sector (government PFI has added to public sector debt but created many private sector fortunes
  12. 12. Criticisms of PFI Project Approach Debt costs: financing costs of PFI typically 3- 4% over that of government debt Inflexibility and poor value for money: Long service contracts difficult / costly to change Risk: The ultimate risk with a project lies with the public sector (government PFI has added to public sector debt but created many private sector fortunes
  13. 13. Criticisms of PFI Project Approach Debt costs: financing costs of PFI typically 3- 4% over that of government debt Inflexibility and poor value for money: Long service contracts difficult / costly to change Risk: The ultimate risk with a project lies with the public sector (government PFI has added to public sector debt but created many private sector fortunes
  14. 14. Cross Rail – PFI Ditched in 2013 In 2013 the UK government scrapped plans to procure the Crossrail rolling stock as a private finance initiative and instead decided to finance it fully on Transport for London’s balance sheet. That decision was prompted by concerns about how long it had taken to get previous PFI train deals financed, including Thameslink
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