177/99
29 October 1999
TREASURY PUBLISHES PUBLIC SECTOR COMPARATORS GUIDANCE ON PRIVATE FINANCE INITIATIVE (PFI) DEALS
The Treasury today published guidance on how to assess the long term cost of Private Finance Initiative bids against the estimated cost of alternative services managed by the public sector.
The guidance sets out how the long term cost of PFI bids should be compared with the estimated cost of alternative services managed by the public sector and assuming the use of public sector capital investment.
Welcoming publication of Technical Note 5 "How to construct a Public Sector Comparator" Andrew Smith, Chief Secretary to the Treasury said:
"The new guidance will provide consistency and clarity for everyone involved in the development of schemes to improve front line public services.
"The Government's purpose in using the PFI route is to improve public services in ways that offer value for money. Where PFI is unlikely to achieve these aims, services will be provided by direct capital investment. The new guidance will ensure greater rigour and consistency in decisions about whether to use PFI.
"Public sector comparators alone are not the basis for assessing value for money. The National Audit Office has always made it clear that PFI deals require a systematic evaluation of all the likely benefits and costs and I recognise their reports on early PFI transactions have helped to clarify the issues on which such guidance was needed."
Mr Smith said that there were many benefits arising from the use of PFI deals and gave a number of examples. In a hospital, this could include the considerably faster delivery of modern facilities, on a single site, allowing NHS management to focus on the quality clinical services. Similarly in schools, parents would favour the benefits of teachers concentrating on raising educational standards without the distractions of inadequately maintained buildings and the disruption of winter boiler failures.
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The new guidance reflects the intensive consultation with departments PFI contractors and the National Audit Office, whose reports on early PFI transaction helped clarify the issues on which such guidance was needed.
NOTES FOR EDITORS
1. The guidance was also welcomed by Jeremy Coleman, NAO's Assistant Auditor- General, who commented:
"The public sector comparator is a key part of the financial evaluation of proposed PFI projects. The public sector comparator is an important guide to judgement on the overall value for money of a PFI project. In one case we have found basic arithmetical errors, but more generally experience shows that these calculations can be difficult. The NAO therefore welcomes this new guidance from the Treasury on how to get them right. The public sector comparator should not be a pass or fail test, but needs to be seen in the context of a systematic evaluation of all the costs and benefits of the project."
2. The Technical Note updates principles originally published in 1998 for the calculation of public sector comparators in the Taskforce's Policy statement No. 2 "Public Sector Comparators and Value for Money".
3. Media enquiries and requests for copies of the document should be addressed to Malcolm Graves in HM Treasury press office on 0207 270 5192. For further information on the publication issued contact Alastair Campbell of the Taskforce policy arm on 0207 270 5022. The new Treasury guidance on public sector comparators is available from the Public Enquiries Unit on 0207 270 4558 or Adrian Murphy on 0207 270 4841.