Do PPPs in Social Infrastructure Enhance the Public Interest? Evidence from England's National Health Service
This article outlines and critiques the main fiscal and economic rationales for the Private Finance Initiative – by far the dominant form of public-private partnership in the United Kingdom (UK) – and examines the impact of the policy on the long term financial viability of the National Health Service. It shows that the interest rate on private finance contains a significant element of ‘excess return’ to investors, and there is no evidence that this ‘excess cost’ to the public sector is offset by greater efficiency through the contracting process. It concludes that the private financing of public capital investment is highly problematic – and can have a serious impact on the finances and capacity of public authorities. Since 1992, the UK’s Private Finance Initiative (PFI) has involved the private sector in the financing and building of public infrastructure and the delivery of related services. This article starts by outlining the motivations and rationales underpinning the implementation of PFI in the UK. It argues that PFI is one expression of the philosophical preference among successive governments for enlarging the private sector’s role in the economy, and is driven by a (related) ideological belief in the inherent superiority of private over public models of investment and service delivery in addition to a political imperative to deliver high levels of capital investment into social and economic infrastructure while maintaining the appearance of a tight fiscal stance. Both Labour and Conservative governments have argued that PFI enhances the public interest through the provision of additional resources for public investment, and delivering infrastructure and servicesmoreefficiently than the available alternatives, such as public procurement. The contention of this article is these arguments are flawed. Investment through PFI cannot, in and of itself, lead to fiscal savings; and the economic case for the method is based on false assumptions and misleading evidence. If the economic and fiscal arguments for PFI are not justified, the key question becomes: what is the real impact of this procurement model on the public interest? The bulk of this article provides an evaluation of the impact of PFI on the health system in England, the National Health Service (NHS), a component of the public sector in which public interest considerations ought to be at the fore of decisionmaking. We show that, far from enhancing the public interest, the effect of PFI has been to reduce NHS capacity, thereby threatening its ability to meet need.