Private Finance Initiative and Public Private Partnerships

Detailed evidence of the impact of the Private Finance Initiative and Public Private Partnerships

  • Evidence submitted to Parliamentary Investigations into PFI/PPP contracts and Privatisation

    Sale of Equity in PFI companies, Written evidence to House of Commons Committee of Public Accounts, June 2011

    House of Commons Committee of Public Accounts
    Lessons from PFI and other projects
    Report, together with formal minutes, oral and written evidence
    HC 1201 – 1 September 2011


    The Committee conclusions and recommendations included:

    “The Treasury was unable to confirm the extent to which parties involved with PFI contracts were paying UK tax and whether the companies holding PFI contracts were paying UK corporation tax.”

    “Tax revenue is being lost through the use of off-shore arrangements by PFI investors and the effect has not been adequately assessed. The Committee is concerned that the Treasury has no plans to address this matter. Some PFI investors reduce their exposure to UK tax through off-shore arrangements. Yet the Treasury assume tax revenue in their cost-benefit analysis of PFI projects. The
    Treasury could not tell us if PFI investors had paid tax in the UK on profits and on equity gains, or whether corporation taxes had been collected from PFI companies. The Treasury should measure the tax revenues from PFI deals and should ensure that this is taken into account in future assessments of PFI against conventional procurement."

    "The public sector has insufficient information on the returns made by PFI investors and no mechanism for sharing in gains when the investors sell their shares. Partial information we have seen suggests initial investors can quickly make high profits from selling on their shares in PFI projects, indicating that the taxpayer may be getting a poor deal in the original PFI contracts. The Treasury should introduce arrangements for sharing gains on the sale of PFI equity shares in new PFI
    projects. We consider there is also a case for a code of conduct for sharing gains from share sales in existing contracts.”

    Sale of Equity in PFI companies
    Written evidence to House of Commons Treasury Committee, June 2011
    Private Finance Initiative, Volume ll Additional written evidence Ev w121 –  Ev w127


    The Committee conclusions and recommendations are included in:
    House of Commons Treasury Committee
    Private Finance Initiative
    HC 1146 – August 2011

    Evidence Prof. Dexter Whitfield to:
    House of Commons Committee of Public Accounts
    Private Finance Initiatives
    Report HC 894 - 20 June 2018

    The Committee conclusions and recommendations included:

    “Offshore funds have bought up about half of the equity in PFI and PF2 projects so that the projects’ owners are increasingly remote from the public service being delivered. In addition, offshore owners of these projects pay little tax, thereby reducing one of the benefits used to justify the contracts in the first place.

    Add to this the additional costs (and profits) generated by variations to the contract and the deal is not working for the taxpayer.”

    “Some private investors have made large returns from PFI deals, suggesting that departments are overpaying for transferring the risks of projects to the private sector, one of the Treasury’s stated benefits of PFI. Private investors expect a financial return as reward for taking on risks transferred to the private sector under PFI deals. Investors in the M25 PFI deal made an estimated annual return of over 30% after selling their stake in the project after 8 years, more than double the 12%–15% annual returns expected over the life of most PFI deals. Equity returns this large may reflect errors in the pricing of risk transfer to the private sector at the time contracts were signed. We previously recommended that the Treasury should introduce arrangements to share the profits from PFI deals between private investors and the public sector, which the Treasury rejected. It instead sought to limit excessive returns to investors through equity funding competitions, which are relatively untested, and do nothing about the rate of returns from the existing stock of PFI projects. We received written evidence from Professor Whitfield, Director of the European Services Strategy Unit, who told us that offshore infrastructure funds owned around half of the equity in PFI and PF2 projects, with the five largest of these offshore funds paying less than 1% in tax on their PFI profits. The Treasury told us that public procurement rules prevent discrimination against non-UK domicile investors. The amount of tax an investor pays is relevant, however, because the assessment of whether a prospective PFI deal is likely to provide value for money should include the corporation tax an investor is expected to pay as a benefit of PFI. The assessment may therefore overstate the benefits of the deal, and could lead to an incorrect value for money decision, if equity is subsequently purchased by offshore investment funds and corporation tax receipts are lower as a result.”

    “Recommendation: The Treasury should calculate the returns to originating PFI equity investors when they sell on their stake and use the information to inform pricing for future projects. This should include the domicile of project equity holders, and what impact a reduced tax take would have had on the original project value for money tests.”

    “In written evidence, Professor Dexter Whitfeld, Director of the European Services Strategy Unit, told us that returns to investors in excess of 25% are not uncommon in PFI projects. His analysis of 118 transactions that involved the sale of equity revealed an average return to investors of 28.7%. Equity returns this large may reflect errors by departments in their pricing of risk transfer to the private sector at the time they entered into the contracts. We examined equity returns in 2010 and concluded that excessive gains may indicate overpriced PFI contracts.

    The previous Committee suspected in 2011 that initial investors were able to make excessive profits from selling PFI shares, but lacked the information to be sure. It believed that there was a strong case for sharing these gains with the government. The Committee recommended that the Treasury should introduce arrangements for sharing in investors’ gains. The Treasury partially accepted this recommendation saying that consideration would be given to the sharing of gains from PFI equity investors. However, the Treasury told us that it had decided against introducing sharing arrangements, despite other countries using such arrangements. Instead the Treasury sought to address the problem by introducing equity funding competitions.38 These competitions are intended to drive down the price of equity by creating competitive tension between bidders seeking to invest in a portion of the project equity. Government has only used an equity funding competition in one PF2 deal to date, and while this successfully resulted in lowering the returns to equity investors, the approach is relatively untested. Moreover, the changes only affect future PF2 deals, and do nothing about excessive returns investors can make on the historic stock of over 700 projects. The public sector will also invest as minority equity stake in all future PF2 deals, which should increase transparency to these returns as the public sector will have a seat on the PFI provider’s Board.

    We were concerned to hear of high profile cases where the equity element of PFI contracts have been sold to offshore investment funds that pay little or no corporation tax in the UK, which we first drew to the Treasury’s attention in 2011.42 The previous Committee highlighted the potential for tax avoidance through the sale of equity in the secondary market to investors non-domiciled in the UK.43 The Treasury told us that, while the vast majority of PFI companies are UK tax domiciled and pay corporation tax, public procurement rules prevent discrimination against non-UK domiciled companies and investors.44 As a result, the Treasury cannot control where secondary PFI investors are located, and can only take action if there is evidence of inappropriate tax evasion.45 Professor Whitfield told us that offshore infrastructure funds owned around half of the equity in PFI and PF2 projects, with the five largest offshore infrastructure funds making profits of £2.9 billion in the 5 year period between 2001–2017, and paying less than 1% in tax on their PFI profits.46 The Treasury’s rules require departments to undertake a value for money assessment of a PFI or PF2 deal, and the amount of corporation tax a private company is expected to pay is one component of this. The higher the amount that the company is expected to pay, the more likely that the PFI option will be judged value for money. These tax adjustments have historically been criticised for being too high.47 If the calculations do not reflect the reality that offshore investors dominate the secondary market, then the estimated benefits will be overstated.48 We were concerned that this could lead to an incorrect conclusion that the PFI or PF2 deal offers better value than the project being financed by the public sector.”

    Legislative Council of South Australia
    Select Committee on the privatisation of public services in South Australia 2021
    Evidence submitted: Global, state and city dimensions of privatisation
    Prof. Dexter Whitfield, July 2021

  • Financing the Infrastructure in the 21st Century: The Long Term Impact of Public Private Partnerships in Britain and Australia by Dexter Whitfield

    A detailed study of the longer-term impact of changes in the design, structure and financing of PPP/PFI projects, external economic and political drivers such as growth of the secondary market and government modernisation policies, and the effect of economic, social and employment change. The report also examines PPP/PFI performance, democratic accountability and transparency, the impact on jobs and concludes with an assessment of alternative public sector investment strategies. 80 pages, Dunstan Paper 2/2007, ISSN 1833-3613 Published by the Don Dunstan Foundation, University of Adelaide, Australia.

  • Fingers in the PFI

    Twenty years on from the introduction of the private finance initiative (PFI), Dexter Whitfield examines the effect it has had – and how it’s set to get worse under new Tory plans (PF2) – Red Pepper, Feb/Mar 2013, Issue 188, pages 16 – 18.

  • PPP Wealth Machine: UK and Global trends in trading project ownership: ESSU Research Report No 6

    The average annual return on the sale of equity in UK PPP project companies was 29% between 1998-2012 – twice the 12%-15% rate of return in PPP business cases at financial close of projects. The excess profit could be £2.65bn, all of which benefits private sector companies. This report exposes the real level of profiteering in PFI projects and shows how the government's new PFI model, Private Finance 2, does nothing to address the profiteering or lack of transparency. Includes a Global database of PPP equity transactions. Also ESSU UK PPP Equity database can be download at

  • The Private Finance Initiative: nationalise the Special Purpose Vehicles and end profiteering from public assets

    This is a radical proposal by the People vs Barts PFI campaign which has been researching and discussing ‘what to do about PFI’ for several years. The paper explains what SPVs are, how SPVs spin off private profit from public assets and proposes a mechanism for nationalising the SPVs. Proposals to strengthen the public design, project management and ‘intelligent client’ functions be strengthened in non-PFI public sector construction projects and problems with the proposal to centralise the debt are detailed in two appendices. A proposal to centralise and reduce PFI obligations contained in Part 4 of the NHS Reinstatement Bill are also examined.

  • Global Auction of Public Assets: Public sector alternatives to the infrastructure market & Public Private Partnerships by Dexter Whitfield

    A new study exposes the impact of the emerging global infrastructure market and widening use of Public Private Partnerships, which is fuelling a new era of public asset sales. Yet over US$500bn of PPP projects have failed, most have little democratic control or transparency. They are costly, poor value and lack innovation. Ultimately, they are entirely financed by government and/or user charges. This is the first critical global analysis examines PPP programmes in the UK, France, Ireland, Germany, the US, Canada, Russia, Australia, China, India, Brazil and South Africa.

    This book shows how public infrastructure in the 21st century is confronted with new challenges – adapting to climate change, meeting the economic, energy, water, transportation and social infrastructure needs of megacities in Asia, megaregions in North America and European city regions. It explains why public infrastructure has a vital role in economic development, increases productivity, generates employment and improves community well-being.

    Yet, globally, nearly 1,000 PPP and privatisation projects, valued at over US$500bn, have been terminated or radically reduced. Most PPP projects have little or no democratic control or transparency, are costly, poor value, lack innovation and flexibility, reduce employment and exaggerate risk transfer. A secondary market has emerged in which schools, hospitals and roads are traded like commodities. Global Auction of Public Assets demonstrates why new public investment priorities are urgently required and sets out ways to build new alliances and strategic interventions.

  • Failures, delays and soaring cost of Barnet Council’s Street Lighting PFI contract

    The London Borough of Barnet signed a £100m 25-year PFI street lighting contract with Barnet Lighting Services Limited (Bouygues Construction and Mill Group infrastructure fund) in April 2006. This Briefing details the delays and performance failures by the private contractor, the lack of audit despite the high risks and cost increases borne by the Council, and the lack of regular, comprehensive and publicly available monitoring reports.

  • Newcastle Street Lighting PFI Project

    The report questions the basis on which community benefits have been calculated, in particular the reduction in road accidents and crime reduction. It concludes that value for money is not proven because the Private Finance Initiative (PFI) option has been manipulated by the inclusion of over £16m of efficiency savings, PFI savings and risk costs either added to the Public Sector Comparator (PSC) or subtracted from the PFI option. (October 2001)

  • The Marketisation of Teaching

    The April 2006 issue of the PFI Journal contains an article by Dexter Whitfield which examines the potential impact of the Building Schools for the Future programme on education.

    Building Schools for the Future (BSF) has a central role in the government's strategy to marketise public services. This article discusses why Local Education Partnerships (LEPs) are a threat to the provision of local education services. It also discusses the possible exclusion of soft services and ICT from BSF contracts and the increasing opposition to academies.

  • Private Finance Initiative and Public Private Partnerships: What future for public services?

    Private Finance Initiative and Public Private Partnerships – What Future for Public Services? Examines the origins of PFI/PPPs, the their claimed rationale and 25 reasons to oppose PFI/PPP projects which include:

    Reconfiguring services – PFI/PPP affects all staff and services
    PFI/PPPs are often more expensive than publicly financed projects
    Escalating project costs
    Whose value for money?
    PFI projects commit future governments to a stream of payments
    Affordability gap – cuts in other services
    PFI is subsidised by government
    High transaction costs
    Public sector comparator flawed
    Privatising the development process: selling land and assets
    Transforming the funding of capital expenditure
    Changing nature of risk
    Lack of democratic accountability
    Service failures
    Public sector lose control over assets and services
    Private sector dictating social and public needs
    Two tier workforce transforming the labour process
    Includes extracts from Public Services or Corporate Welfare: Rethinking the Nation State in the Global Economy by Dexter Whitfield (Pluto Press, 2001).

  • The £10bn Sale of Shares in PPP Companies: New source of profits for builders and banks, Dexter Whitfield

    A new ESSU Research Report reveals 240 PPP equity transactions involved 1,229 PPP projects (including multiple sales) valued at £10.0bn in the last decade. Average profit was 50.6% in individual and group equity transactions (compared to average operating profits in construction companies of 1.5% between 2003-09). £517.9m profit from a sample of 154 PPP projects. If the same level of profit were maintained for the 622 individual and group PPP project equity transactions the total profit would be £2.2bn. (This excludes the undisclosed profits obtained in the sale of secondary market infrastructure funds). Increased use of tax havens for UK infrastructure funds – 91 PPP projects with 50% – 100% equity ownership with funds registered in tax havens.

  • Economic Impact of Prisons in Rural Areas: A Review of the Issues, Dexter Whitfield

    The South Australian State Government is proposing five PPPs for the future development of the State’s correctional facilities by moving men’s and women’s prisons, a youth training centre and a pre-release centre to Murray Bridge. The Public Service Association commissioned the Australian Institute for Social Research (AISR), University of Adelaide, to identify the indirect and/or hidden social/economic costs associated with the relocations. The European Services Strategy Unit literature review focuses on the economic, social and employment impact of locating prisons in rural areas, drawing particularly on US evidence. In October 2008 the South Australian State Government announced that funding for the new prisons will delayed until 2013-14 because of the current economic climate. A preliminary analysis of direct and indirect costs associated with the relocation of prison facilities to the Murray Bridge district was undertaken by the AISR.

  • Privatising Justice: The Impact of the Private Finance Initiative in the Criminal Justice System

    A comprehensive report into the impact of the Private Finance Initiative in the Criminal Justice System for the Justice Forum (2003). It maps PFI in the justice system, examines the efficiency and savings myths and the refinancing of PFI projects. The report also examines the impact on employment, accountability, consultation and access to information. It exposes the lack of equity and social justice and shows how PFI impedes innovation.

  • Private Finance Initiative: The commodification and marketisation of education, Dexter Whitfield, Education and Social Justice, Vol.1 No.2 Spring 1999

    This article examines the major implications of the Private Finance Initiative (PFI) for education, and the schools section in particular. It demonstrates how the PFI is linked to the marketisation of education, and examines the core elements of the PFI in order to create an understanding of its impact on education. It finishes with a detailed assessment of the longer term implications of PFI.

  • Partnerships, Privatisation and the Public Interest: Public Private Partnerships and the Financing of Infrastructure Development in South Australia

    By John Spoehr, Dexter Whitfield and John Quiggin for the Public Service Association of South Australia (2002). Discusses the basics, origins and rationale of PPPs, draws on the lessons from the British and Australian experience (55pp). Discusses the origins of PPPs and their claimed rationale and lessons from the British and Australian Experience.

  • PPPs - Where Will We Be By 2010?, Dexter Whitfield

    Public Management and Policy Association Newsletter, No.16, February 2002. This article addresses the absence of any serious public debate on the longer-term consequences of Private Finance Initiatives (PFIs) and Public Private Partnerships (PPPs), outlining the huge problems and uncertainties which seem likely to materialise from such projects.

  • Book Review: Confuse and Conceal: The NHS and Independent Sector Treatment Centres

    The book by Stewart Player and Colin Leys exposes how a succession of New Labour Health Ministers, advisers, senior civil servants and staff recruited from the private sector operated in the Department of Health to restructure the private health care sector with a network of Independent Sector Treatment Centres (ISTCs). Equally important, it chronicles the failure of scrutiny.