No surprise that the CBI want to keep the system; after all, the organisation’s members benefited from it by making greater returns on investment than would otherwise have been the case. It’s a little misleading to suggest though that this was the only way of attracting private finance to invest in infrastructure. After all, much of what the government borrows to invest directly comes from private finance – it just doesn’t pay as well.
The other argument for PFI was that it enabled the government to reduce its financial risk. There is, indeed, an argument – in principle at any rate – for paying a higher effective rate of interest if the project is lower risk, or even risk-free. It’s a calculation which is complex, but a transfer of financial risk to someone else can justify paying a greater return to them.
The problem with PFI though was that there was little or no transfer of real risk. The customer – us – remained exposed to most if not all of the risk, and at an often increased level of risk due to the higher cost. The suppliers of capital, meanwhile, found themselves with a fairly low risk cash cow. Why wouldn’t they want to keep that system going?
The question now is what happens next. Will the government do as it has been advised, and buy its way out of these contracts, or will they remain a financial milestone for years to come?