Government inheriting poor value assets due to bad handling of PFI contracts, watchdog says
Its report into the use of private finance initiatives (PFI) for infrastructure comes at a time when the government has identified private investment in projects such as power plants and transport outside London as a key part of its growth agenda.
However, the public accounts committee (PAC) is warning that a series of problems with PFI deals could put the government's ambitions to attract investors for such schemes 'in jeopardy'.
Setting out a series of recommendations to ministers, MPs on the committee said that UK infrastructure risked becoming 'stony ground' for investors unless major changes were made.
PFI took off under Tony Blair's government, which saw it as a way of building key public projects without adding to the national debt. However, these deals have long been controversial, and not have always been seen to provide value for money to taxpayers.
More than 650 public sector organisations have their buildings, IT and essential infrastructure managed by a private consortium under a PFI deal, and state bodies are set to pay £136bn in unitary charges for these contracts until 2052-3.
Half of the contracts – covering hospitals, schools and transport – are set to expire during the next decade. The PAC report called on ministers to ensure such contracts were carefully managed so that private sector firms complied with their contractual obligations and 'only quality assets are handed back' to government.
Last year a report by the Association of Infrastructure Investors in Public Private Partnerships warned that schools and hospitals that depend on PFI contracts were in danger of 'severe disruption' unless they could find a way to cope once those contracts expire.
MPs on the PAC are also calling for a more comprehensive framework for how risk is shared between the public and private sector when they work in partnership, particularly after the high-profile collapse of the outsourcing company Carillion, which halted work on new hospitals in Liverpool and Birmingham.
The government also needs to provide detailed information on the pipeline of future projects in order to attract new investors, according to the PAC, amid a current lack of data about the past performance of projects or when future ones will be delivered.
'Our scrutiny has found a woefully obscured picture for any seeking to invest in big infrastructure projects in the UK, with a corresponding drain of skills overseas,' said Sir Geoffrey Clifton-Brown, chair of the PAC.
'Without a long-term, consistent pipeline giving an idea of what to expect in years to come, UK infrastructure risks becoming stony ground for any investor.'
The PAC is calling on the Treasury to identify which financing models it would support for money for different types of projects, such as energy, transport or communication, to attract investors and drive competition.
A central database covering private finance for infrastructure investment should be published, according to the report, to help the Treasury to deliver value for money, given the huge amounts of money involved in such projects, such as the £14.2bn pledged by the government for the Sizewell C nuclear power station in Suffolk.
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The report said: 'After a decline in pensioner poverty in the 2000s, the number of pensioners in relative low income started to rise again from 2010. This has been exacerbated by increases in the cost of living since 2021.' It continued: 'The number of people of pension age living in relative poverty (below 60% of median income) is 1.9 million or 16% of pensioners. 'Measures which factor in the cost of living show that between 2008/09 and 2022/23, the number of pensioners in households below the Minimum Income Standard (MIS)—the amount needed for a minimum dignified socially acceptable standard of living—rose from 1.5 to 2.8 million. 'The proportion of pensioners below 75% of MIS (where the risk of material deprivation increases substantially) rose from 5.9% in 2021/22 to 9.5% in 2022/23. 'In practice, this means cutting back on essentials, like food, energy use and seeing friends, in an attempt to manage costs. Health experts explained the implications for health. Financial hardship can accelerate the ageing process, making it more likely that an older person will enter hospital or need care.' The committee said that in some places, organisations are working together towards shared objectives. The report continued: 'However, not all areas do this. We heard that it would help to have a national cross-government strategy for our ageing society and older people. 'This could provide a framework to hold the different partners to account for their role in delivering the agreed outcomes. It could also ensure that central government departments developed policy with shared objectives in mind.' Committee chairwoman Debbie Abrahams said: 'To boost incomes, the Government needs to come up with a strategy to increase pension credit take-up. It's a scandal that so many have missed out for so many years, often through an aversion to claiming benefits altogether, or lack of support. 'The fairness of the pensions credit eligibility criteria where if you are a penny above the threshold, you miss out on thousands of pounds, also needs to be looked at. 'Ultimately, the Government should decide what it thinks is enough for a dignified retirement, and then work to ensure that all pensioners are on at least that level. 'Faced with a combination of high energy costs, ill-health and ever higher rates of pensioners in more costly privately rented accommodation, tackling pensioner poverty is not simply a DWP (Department for Work and Pensions) issue. So, we're calling for a nationwide, cross-government strategy for an ageing society that should be rooted in equity and wellbeing.' On Tuesday, Chancellor Rachel Reeves said that a review into raising the state pension age is needed to ensure the system is 'sustainable and affordable'. 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Emma Douglas, wealth policy director at Aviva, said: 'The pensions industry – alongside a revitalised Pensions Commission – has a critical role to play in helping people save for retirement and then turn their hard-earned pension pots into lasting financial security. 'With many people likely to manage their money well into their 90s, we must ensure those savings work harder and stretch further – especially as later life can bring complex challenges like cognitive decline.' She said that Aviva and Age UK were exploring a 'mid-retirement MOT' to help give people tools, guidance, and confidence to stay financially resilient throughout retirement. Caroline Abrahams, charity director at Age UK, said: 'We warmly welcome this thoughtful and wide-ranging select committee report, which comes closer to providing a thorough and progressive strategic overview of the issues facing older people on low incomes and proposing workable solutions than anything successive governments have produced in recent years. 'When the Government announced the launch of the Pensions Commission earlier this week, ministers made it clear that its task is to think about the creation of a better system for future pensioners. 'This is necessary and important, but this committee report reinforces the point that there's work to do to improve the situation of today's pensioners on low incomes as well.'
