Thursday, April 28, 2011

PPPs are not value for money

Earlier in the month, the government announced that two new schools in John Key's electorate would be built under a public-private-partnership (PPP) scheme. This is part of a wider trend to foist PPPs on New Zealand, particularly for schools, hospitals, prisons and roads. Meanwhile, over in the UK, the National Audit Office - their equivalent of the auditor-general - has warned that PPPs do not offer value for money, and recommended that the UK government find other ways of financing new infrastructure:

The government's spending watchdog has issued its strongest health warning to date over the use of PFI deals to build new schools and hospitals, saying the government should urgently find alternative ways to invest in major infrastructure projects after some costs spiralled out of control.

Private finance initiatives (PFI), whereby banks and construction companies pay for public sector capital projects then lease them back for a period of up to 30 years, have become increasingly expensive since the credit crisis and the government should consider slowing down the number of new deals it enters into, the National Audit Office says.

The Treasury may be tempted to continue new projects, which allow big capital builds without an initial outlay from the public purse, because it keeps spending off the balance-sheet, the report says. But the ongoing costs have not always provided best value for money, instead locking the government into hugely expensive deals for decades.

How expensive? An earlier report found that under the Private Finance Initiative (their name for PPPs), the UK government had paid £262bn so far for assets worth only £55bn. And there are still 37 years to go on the contracts...

PPPs are simply a scam. The government gets to pretend its not spending money, while in fact massively overpaying for the privilege. They are simply a way of looting the state and providing guaranteed, risk-free profits to the government's rich mates.