The Private Finance Initiative (PFI) is a form of ‘partnership’ between the public and private sectors in which a private company contracts to provide public services, particularly public buildings such as schools or hospitals. It was first introduced by the Conservatives in 1992, used much more extensively after Labour came to power in 1997 and is still in use under the current government, if now in a slightly different form (PF2).
Under a PFI scheme, a new project needing capital investment (such as a hospital) is designed, built, financed and managed by a private company or consortium under a long- term contract – often possibly as long as 60 to 100 years.
The PFI has been favoured by governments partly because it avoids the outlay of large one-off payments and does not show up in government accounts as increased public borrowing (PF2 is different to this).
Critics of these private finance schemes point out that they are really a form of hire-purchase that proves much more expensive than paying the full costs of building ‘up front’. Not only are the very high interest rates on the capital loan creating crippling debts for individual NHS Trusts (see http://www.guardian.co.uk/commentisfree/2012/jun/29/pfi-crippling-nhs and http://www.guardian.co.uk/commentisfree/2010/nov/04/pfi-contracts-cuts), but many Trusts are having to pay extortionate charges for services (such as cleaning or catering) and maintenance once tied into these contracts, leaving less money for patient care (see http://www.telegraph.co.uk/news/politics/8973557/Hospitals-being-charged-extortionate-sums-by-PFI-sums-to-carry-out-basic-DIY-jobs.html).
The high cost of PFI projects means that Trusts with PFI deals have less to spend on staffing and equipment, which negatively impacts on patient care. At the same time, private investors in PFI projects can expect much more than the usual rate of return than for other types of investments: in some PFI schemes investors make between 40-70% in annual returns. (see http://chpi.org.uk/wp-content/uploads/2014/11/CHPI-PFI-Return-Nov14-2.pdf).
For more detail, see our section http://www.patients4nhs.org.uk/more-about-pfi/