"The private finance initiative (PFI) is a way to finance and provide public sector infrastructure and capital equipment projects. Under a PFI contract, a public sector authority pays a private contractor an annual fee, the ‘unitary charge’ for the provision and maintenance of a building or other asset. The unitary charge may also cover services such as cleaning, catering and security in relation to the asset."
"Private finance has always been more expensive than government borrowing, but since the financial crisis the difference between the costs has widened significantly. The cost of capital for a typical PFI project is currently over 8%—double the long term government gilt rate of approximately 4%. The difference in finance costs means that PFI projects are significantly more expensive to fund over the life of a project. This represents a significant cost to taxpayers."
The same Treasury Committee report complained that analyses justifying PFI contracts made unjustifiable assumptions without which the contracts would never have been signed. These included:
- Understating the internal rate of return (IRR), i.e. the profit the private sector partner would extract.
- Overstating the cost of the government simply borrowing money to pay for capital investment, instead of paying rent to a private sector partner
- Underestimating the whole life cost of the contract.
- Overestimating the cost of keeping the work in the public sector
- etc. etc.