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Friday, July 06, 2012

A very costly policy

Whilst we all take in the sheer incompetence of the last Labour Government in removing regulation of the banks and allowing them to fix the inter-bank lending rate, yet another of Gordon Brown's favourite policies has reared its ugly head, complete with expensive consequences.

The Telegraph reports that British taxpayers face a total bill of more than £300 billion for projects funded using the controversial private finance initiative. They say that there are 717 PFI schemes currently under way to build new hospitals, schools, roads and other public facilities with a combined capital value of £54.7 billion.  However, the final cost of paying off all these projects will reach £301.3 billion over the coming decades.

This figure includes fees for running costs such as maintenance and cleaning, but there is little doubt that it would have been cheaper for the Government to have borrowed the money directly to fund the schemes.

It is little wonder that the current government has mostly abandoned this model of financing capital schemes. However, that does not take away the need for a more sustainable method of paying for new projects. That is why the Assembly's Finance Committee has recently recommended that the Welsh Government look at the Scottish model of a non-profit distributing model.

This is a revenue-financed model, from which any profits accruing are capped. NPD models involve a partnership with a private sector provider, which finances, constructs and maintains an asset. The public sector body then, from its revenue budget, pays an annual charge over a period to the private sector provider once the asset has been built..

Initially, profits in excess of the cap were paid to a nominated charity. However, the structure has since been amended to permit any surpluses over and above the capped profit level to return to the procuring body, which will be a local authority, health board or whatever.

It may well be that this is not a suitable model for Wales, but one thing is certain, PFI is discredited and cannot be afforded.
You're turning a blind eye to something more obvious and much closer to home, Peter.

You advise the Welsh Government to "look at the Scottish model of a non-profit distributing model", and I'd agree that it's a good model. But to all intents and purposes it is based on Plaid Cymru's "Build for Wales" proposal, as I pointed out here.
Given that I didnt really seek to accredit NPD to anybody I dont think you can describe it as an omission. It is funny though that neither the Plaid Cymru chair of the Finance Committee nor the party's former leader made that point when we were examaning the options. As it happens I have always supported the Plaid Cymru model and have thought it worth looking at.
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