FAQs

What are Public Private Partnerships?

A PPP refers to any alliance between public bodies, local authorities or central government, and private companies to deliver a public project or service. PPPs typically involve the joint ownership of a special purpose vehicle established under company law.

What is the Private Finance Initiative?

PFI is a more formal approach of PPP in the UK, and these schemes generally provide the capital asset and services relating to that asset. The public sector specifies a level of service in return for a regular payment, called a unitary charge.

The PFI was announced in the UK by the Conservative Government in its 1992 Autumn Statement. Its aim was to achieve closer partnerships between the public and private sectors, and to secure private sector expertise to deliver public infrastructure, with the private sector bearing the risk. Following two reviews of PFI by Sir Malcolm Bates, the present Government has continued to pursue the delivery of some public services through this means.

According to HM Treasury, under PFI the public sector contracts to purchase services on a long-term basis so as to take advantage of private sector management skills incentivised by having private finance at risk. The private sector has always been involved in the building and maintenance of public infrastructure, but PFI ensures that contractors are bound into long-term maintenance contracts and shoulder responsibility for the quality of the work they do. With PFI, the public sector defines what is required to meet public needs and ensures delivery of the outputs through the contract. Consequently, the private sector can be harnessed to deliver investment in better quality public services whilst frontline services are retained within the public sector.

When is PFI used?

According to HM Treasury, the Government only uses PFI where it is appropriate and where it expects it to deliver value for money. This is based on an assessment of the lifetime costs of both providing and maintaining the underlying asset, and of the running costs of delivering the required level of service. In assessing where PFI is appropriate, the Government’s approach is based on its commitment to efficiency, equity and accountability, and on the Prime Minister’s principles of public service reform. PFI is only used where it can meet these requirements, and where the value for money it offers is not at the expense of the terms and conditions of staff. The Government is committed to securing the best value for its investment programme by ensuring that there is no inherent bias in favour of one procurement option over another.”

What proportion of overall Government investment in public service infrastructure is procured through PFI?

PFI plays a small but important role in the Government's investment in public services - it accounts for less than 15% of public service infrastructure investment. According to HM Treasury, the vast majority – over 85% - of the overall investment is conventionally procured public investment.