The head of the committee that scrutinises government spending has told Construction News she no longer believes private finance should be used to fund public sector capital projects
Labour MP Margaret Hodge, chair of the public accounts committee, has questioned whether the use of private finance can offer value for money.
She said private investors’ priority was always to make a return for their shareholders or stakeholders, putting them at odds with getting value for money for taxpayers.
Instead, the government should pay for assets upfront, borrow the money itself and make the debt clear on its balance sheet or raise cash from taxes and user charges.
“If you want to build hospitals and schools – and you should – you should pay for them.
“There are inventive ways of doing it: toll roads, raising taxation to pay for capital investment.”
Her comments came as the government closed its call for evidence on the private finance initiative. She said: “The only justification for PFI is that you get it off balance sheet – what you should be really doing is recognising the worth of the asset and be willing to pay for it.”
Research by her committee found that the UK is paying £4 for every £1 spent on PFI projects.
According to analysis of the whole of government accounts, the country faced £131 billion of future debt on projects in 2009/10.
On Friday, a report by the National Audit Office said investors are over-charging for risk, with equity investors expected to exceed the government’s targets on returns in 84 of 118 projects.
She added: “When I started this job having come out of government, I was a firm supporter of PFI, on the basis that it had built hospitals and schools and other capital infrastructure that we could not have otherwise have built,” she said. “Eighteen months into the job, I have become a sceptic.
“That’s not because I don’t recognise those schools and hospitals, but I think this is such a bad value for money way of building those schools and hospitals, and it saddles future generations with such big bills.
“They [contractors] have got an interest which may not meet the interest of the taxpayer.”
The former culture minister said she would “look on with interest” as the government decides how to develop a model to replace PFI.
“I wish them well, but I will be thoroughly and assiduously assessing what they do to hedge it with value for money.”
Ms Hodge said she was unconvinced by the potential for pension funds to provide the investment needed for major infrastructure projects. “Pension funds are the most cautious investors I know and they want their return. I can’t see how they can square that circle with value for money.”