Why pfi is bad

But in return for the upfront capital costs being financed by private investors, the hospital trusts or other public bodies were then often burdened with contractually onerous financial payments for the following years. Read more: Why private finance initiatives are so addictive — and yet offer such poor value for money. These extra costs, meted out to the private sector, go on to line the pockets of shareholders — many of which hold their earnings in offshore companies , therefore paying little to no tax on these earnings in the UK.

Meanwhile, there is little to no evidence that PFI delivers operational efficiencies. Nor that it is the only route through which public assets can be maintained to a high and acceptable standard throughout the life of the asset. After that, the public sector would own the asset. But under PFI the state commissions a builder to deliver the project. The builder then borrows from the bond market to finance the construction. The state then pays the builder or a separate company that buys out the contract regularly to effectively lease the building or piece of infrastructure over several decades.

The theoretical justification for PFI is that the private sector is more efficient at delivering and managing infrastructure projects than civil servants. PFI also supposedly transfers the financial risk of a construction project over-running from the public to the private sector. There are straightforward service contracts — for jobs like cleaning prisons and maintaining army homes — where civil servants can drive a hard bargain. Or there are large complex projects — like building and running new hospitals — which involve private consortiums raising much of the cash and last up to 30 years.

These can offer businesses the chance to disguise excessive management fees and take all the benefit of refinancing the debt at much lower costs — or, in the case of Carillion , they can run over budget and behind schedule and become a crippling burden.

It was spun out of the Tarmac construction business in and steadily took over rivals, such as Mowlem and Alfred McAlpine. It expanded into Canada and built a construction arm in the Middle East. Carillion then diversified into outsourcing, taking on contracts such as running the mailroom at the Nationwide building society to helping upgrade UK broadband for BT Openreach. For Glennon, however, the solution may simply be to go back to basics.

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