Motivation for the Private Finance Initiative
Motivation for the Private Finance Initiative TABLE OF CONTENTS Table of Contents 2 Introduction 3 The Evolution of the PFI 5 Privatisation and Investment 9 The Development of the Private Finance Initiative (PFI) 11 Conclusions 14 Bibliography 16 This paper has been prepared to provide a comprehensive analysis for the motivation for the Private Finance Initiative (PFI). ... Introduction In the early 1990s the government launched the Private Finance Initiative (or PFI) in an attempt to attract private sector support for a wide range of government projects in sectors such as health, prisons, transport and defence. To date this initiative has raised billions of pounds of capital investment from the private sector and raises somewhere in the region of 20% of the government’s capital budget each year. In order to raise the level of investment that business can require for large expansion and modernisation projects it is felt necessary by the government to raise capital investment from the private sector. ... The Private Finance Initiative has become so commonplace that it is no longer considered ‘an initiative’ but part of the government’s policy of Public-Private Partnerships (PPPs). ... The UK trend in securing private involvement in investments is not unique. ... The (PFI) has been copied all over the world with South Africa among those countries seeking to attract private capital into its prison building programme following the British model. ... At that time the PSBR (fiscal deficit) was increasing and private sector investment in the public sector was seen as a way of improving the government’s finances. ... Italy, France and Spain have used private finance for building motorways for many years. Australia and New Zealand and the US have been using private finance in prison, road and hospital building for many years. ... These rules prescribed the limits of private sector involvement in the financing of government projects. Specifically, private investors in public projects could not be offered favourable risk terms and projects needed to provide benefits in terms of improved efficiency and profit when compared to the cost of raising risk capital from the financial markets. These rules meant that private sector capital could not be offered fair terms if it was invested in government sponsored projects. The aim was not to prevent private sector involvement but to stop ministers redistributing financial obligations into the future, in order to get around budget constraints.