Cost-saving claims for PFI are ‘based on biased evidence’
Treasury claims that private finance initiatives save money are based on flawed and biased evidence, according to a report by Scottish researchers.
Studies used by Westminster to support the controversial policy, where public buildings such as schools and hospitals are built by private firms and leased back to the state, were examined by a team at Edinburgh University.
Two of the documents cited by officials and drawn up by the National Audit Office (NAO) are based on interviews with managers of PFI projects, say the academics. Only one of the data sources compares PFI and public-funded schemes, and this, they claim, does not contrast like-for-like.
Professor Allyson Pollok, head of the Centre for International Public Health Policy at Edinburgh University and co-author of the research, said: "We have false data being used to reassure the public and being incorporated into the government's own guidance."
Private finance, or public private partnerships, have increasingly been used to replace outdated public sector buildings both north and south of the border - despite controversy about what they ultimately cost the taxpayer. A new £300m hospital is being built in central Scotland through such an initiative.
In a policy statement in 2003, the Treasury said research into completed PFI projects showed 88% came in on time or early, with no overruns on construction costs borne by the public purse. In contrast, they noted, earlier analysis of non-PFI projects found 70% were delivered late, and 73% ran over budget.
The same data has since been referred to by the government and others to defend PFI, according to the Edinburgh University researchers.
They set out to check five studies used to support such claims, and say in the Journal of Public Money and Management: "We show that the Treasury claims about the benefits of the PFI in relation to comparative performance on time and cost overruns are not supported by their data and, as a result, Treasury guidance is biased in favour of the policy."
One of the studies looked at the way costs rose during the course of planning and constructing PFI and state-funded buildings. However, the rise in the PFI schemes was measured from the point when a full business case had been drawn-up, while the rise in the state-funded schemes was measured from an earlier milestone, the outline business case stage, according to the Edinburgh University report.
Professor Pollok added: "With 450 PFI schemes, they only had a sample of 11 and only complete data on three. They got 39 public sector comparators at a time when there was almost no public sector building going on."
A Treasury spokeswoman said: "The independent National Audit Office, not the Treasury, reported on the effectiveness of PFI projects, and it is they who state that PFI gives greater certainty'. The Government remains committed to investing in public services and infrastructure to overcome a historic legacy of under-investment, and PFI will continue to be used to deliver a small but important part of this."
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Posted by: Jason Jack, Scotland on 9:34pm Wed 4 Apr 07
The SNP have being saying this for years...see their website for the alternative. Another policy vindication for the SNP. It gives no joy that the other parties did not listen to their good sense!
The SNP have being saying this for years...see their website for the alternative. Another policy vindication for the SNP. It gives no joy that the other parties did not listen to their good sense!
Posted by: John Tanner, Glasgow on 10:01pm Wed 4 Apr 07
Lies, lies, and damned New Labour. The utter contempt they have for us reaches ever lower depths. It is galling they can still look their countrymen square in the eye and continue to lie and talk our great country down while wrapping themselves in the Saltire. We've seen behind their curtain and it's a mess as they pour our money into fat-cats and bombs and bullets. Vote SNP to rid ourselves of these warmongers, liars, and hyporcites. Don't believe them when they talk down Scotland. Believe in Scotland and vote SNP.
Lies, lies, and damned New Labour. The utter contempt they have for us reaches ever lower depths. It is galling they can still look their countrymen square in the eye and continue to lie and talk our great country down while wrapping themselves in the Saltire. We've seen behind their curtain and it's a mess as they pour our money into fat-cats and bombs and bullets. Vote SNP to rid ourselves of these warmongers, liars, and hyporcites. Don't believe them when they talk down Scotland. Believe in Scotland and vote SNP.
Posted by: Robert East Kilbride on 10:10pm Wed 4 Apr 07
PFI and public-funded schemes
NEW LABOUR Has continued with Tory policy, only with a new name, both New labour & Tory schemes are more expensive than public funded schemes.
The money come from the same POT the main deference is :
Money borrowed through PFI has a more expensive rate of interest.
The government can borrow money at a much lower rate of interest
so why are New Labour using this [bold]most expensive way???[/bold]
PFI and public-funded schemes
NEW LABOUR Has continued with Tory policy, only with a new name, both New labour & Tory schemes are more expensive than public funded schemes.
The money come from the same POT the main deference is :
Money borrowed through PFI has a more expensive rate of interest.
The government can borrow money at a much lower rate of interest
so why are New Labour using this
most expensive way???
Posted by: tom on 10:54pm Wed 4 Apr 07
and to think of the cheek Labour have when they keep talking of deficits. The PFI schemes are very costly and could have been done at a fraction of the total end cost of these schemes using Public Trusts . Please dump Labour and the Liberals who have allowed these schemes to go ahead and fleece the taxpayers.
and to think of the cheek Labour have when they keep talking of deficits. The PFI schemes are very costly and could have been done at a fraction of the total end cost of these schemes using Public Trusts . Please dump Labour and the Liberals who have allowed these schemes to go ahead and fleece the taxpayers.
Posted by: Munro Ross, Inverness on 11:46pm Wed 4 Apr 07
See also the UNISON Scotland website for exposes of how costly PFI will be - in special section and also in the Revitalsie manifesto.
some day New Labour/Toreis will acknowtiedge the truth that PFI is costly and all the changes that Labour have brougjht in are jsut round edges.
See also the UNISON Scotland website for exposes of how costly PFI will be - in special section and also in the Revitalsie manifesto.
some day New Labour/Toreis will acknowtiedge the truth that PFI is costly and all the changes that Labour have brougjht in are jsut round edges.
Posted by: Bill Forbes, Cambuslang on 11:49pm Wed 4 Apr 07
Not quite an alternative Jason Jack – more of a choice option. If you read the SNP proposals for PFI they do not intend taking back any existing projects; they do not intend stopping any planned projects, in fact they do not intend banning PFI in the future – it will still be an option for local authorities and government to use. Why? Because they know it makes sense. All of the SNP model countries (Norway, Iceland, Ireland, etc) use PFI – the SNP will use PFI, an independent Scotland will use PFI. It helps prevent £40 million parliament buildings turn into £400 million ones.
The SNP proposal for a “Scottish Futures Trust” is window dressing – based around the naively hopeful idea that an independent Scotland would be able to offer bonds into the market with a AAAA rating.
Have a look at the published details of the proposed Glasgow Airport Rail Link – all submitted to Parliament. When all the engineers, designers, surveyors and so on had done their bit the actual base line cost for the new railway was set at £125 million. By the time the civil servants got hold of it and added contingencies, inflation allowances and “optimism bias” it was sanctioned at £210 million – and you can bet every penny of that will be spent. And of course, it was first promised for 2008, then 2010, now 2011 but you won’t see it before 2012.
The more public investment that can be taken away from the civil servants and into a competitive market the better.
And is that Dr Allyson Pollock the same Allyson Pollock who was featured on the BBC Frontline programme last November bleating on about the same thing?
And she accuses others of bias?
Not quite an alternative Jason Jack – more of a choice option. If you read the SNP proposals for PFI they do not intend taking back any existing projects; they do not intend stopping any planned projects, in fact they do not intend banning PFI in the future – it will still be an option for local authorities and government to use. Why? Because they know it makes sense. All of the SNP model countries (Norway, Iceland, Ireland, etc) use PFI – the SNP will use PFI, an independent Scotland will use PFI. It helps prevent £40 million parliament buildings turn into £400 million ones.
The SNP proposal for a “Scottish Futures Trust” is window dressing – based around the naively hopeful idea that an independent Scotland would be able to offer bonds into the market with a AAAA rating.
Have a look at the published details of the proposed Glasgow Airport Rail Link – all submitted to Parliament. When all the engineers, designers, surveyors and so on had done their bit the actual base line cost for the new railway was set at £125 million. By the time the civil servants got hold of it and added contingencies, inflation allowances and “optimism bias” it was sanctioned at £210 million – and you can bet every penny of that will be spent. And of course, it was first promised for 2008, then 2010, now 2011 but you won’t see it before 2012.
The more public investment that can be taken away from the civil servants and into a competitive market the better.
And is that Dr Allyson Pollock the same Allyson Pollock who was featured on the BBC Frontline programme last November bleating on about the same thing?
And she accuses others of bias?
Posted by: Brian Blessed, Glasgow on 12:11am Thu 5 Apr 07
[quote]By the time the civil servants got hold of it and added contingencies, inflation allowances and “optimism bias” it was sanctioned at £210 million[/quote]
And if you read Prof Pollock's report, you will see that this is [bold]mandatory[/bold] for any public sector project not paid via PFI - as dictated by G Brown's Treasury.
The report is available at:
http://www.health.ed.ac.uk/CIPHP/publications/author.php?authorID=9&first=1&submit2=Search
(first result)
The gist of it seems to be that in comparing public sector investment unfavourably with PFI, the Treasury and Labour party are guilty of extreme selection bias - picking and choosing the figures to suit their ideological agenda. For example, featuring the Thames Barrier (built 1982) and the Tyne & Wear Metro (1980) - when inflation and interest rates were in double figures! As well as including Guy's Hospital, where the private contractor bailed out of the contract and the public sector was forced to complete the project under (obviously) difficult circumstances.
I would encourage anyone to have a read and judge for themselves.
Such spin and self-selection will no doubt come in handy for Labour MPs and MSPs' future careers as consultants and non-executive directors of the companies benefiting from this mass privatisation.
By the time the civil servants got hold of it and added contingencies, inflation allowances and “optimism bias” it was sanctioned at £210 million
And if you read Prof Pollock's report, you will see that this is
mandatory for any public sector project not paid via PFI - as dictated by G Brown's Treasury.
The report is available at:
http://www.health.ed.ac.uk/CIPHP/publications/author.php?authorID=9&first=1&submit2=Search
(first result)
The gist of it seems to be that in comparing public sector investment unfavourably with PFI, the Treasury and Labour party are guilty of extreme selection bias - picking and choosing the figures to suit their ideological agenda. For example, featuring the Thames Barrier (built 1982) and the Tyne & Wear Metro (1980) - when inflation and interest rates were in double figures! As well as including Guy's Hospital, where the private contractor bailed out of the contract and the public sector was forced to complete the project under (obviously) difficult circumstances.
I would encourage anyone to have a read and judge for themselves.
Such spin and self-selection will no doubt come in handy for Labour MPs and MSPs' future careers as consultants and non-executive directors of the companies benefiting from this mass privatisation.
Posted by: Bill Forbes, Cambuslang on 1:01am Thu 5 Apr 07
Brian Blessed, you are quite right about the Optimism Bias (O.B.) now being a prerequisite of any project within the conventional procurement route. However it would take some calculator to get from £125m to £210m using the recommended O.B. rates in the Green Book.
The Glasgow Airport Rail Link has been particularly padded out, and remember the £210m figure is for an assumed completion in 2010. Any bets for £235m as the final figure?
I have read Prof. Pollock’s report and it appears to say little new from her November headlines. The Treasury is possibly guilty of putting a gloss on things – however the National Audit Office examined the matter and revised the Treasury figures. Marking down the PFI success rate from the stated 88% to 80% and marking up the performance of conventional procurement from the stated 27% to 55%.
Surely Prof Pollock’s ire should be directed at the alleged poor performance of the independent NAO – unless she is making some kind of political statement – again.
Brian Blessed, you are quite right about the Optimism Bias (O.B.) now being a prerequisite of any project within the conventional procurement route. However it would take some calculator to get from £125m to £210m using the recommended O.B. rates in the Green Book.
The Glasgow Airport Rail Link has been particularly padded out, and remember the £210m figure is for an assumed completion in 2010. Any bets for £235m as the final figure?
I have read Prof. Pollock’s report and it appears to say little new from her November headlines. The Treasury is possibly guilty of putting a gloss on things – however the National Audit Office examined the matter and revised the Treasury figures. Marking down the PFI success rate from the stated 88% to 80% and marking up the performance of conventional procurement from the stated 27% to 55%.
Surely Prof Pollock’s ire should be directed at the alleged poor performance of the independent NAO – unless she is making some kind of political statement – again.
Posted by: Tom McAlister on 1:42am Thu 5 Apr 07
.
HOUSE OF COMMONS SESSION 1997-98
COMMITTEE OF PUBLIC ACCOUNTS
Forty - Second Report
[bold]THE SKYE BRIDGE[/bold]
worth reading that, you can add the pay off + expenses as well.
.
HOUSE OF COMMONS SESSION 1997-98
COMMITTEE OF PUBLIC ACCOUNTS
Forty - Second Report
THE SKYE BRIDGE
worth reading that, you can add the pay off + expenses as well.
Posted by: Ebenezer McGrory on 4:50am Thu 5 Apr 07
As soon as you see the name Professor Allyson Pollock you can predict exactly what she's going to say. Worthless report for that reason.
As soon as you see the name Professor Allyson Pollock you can predict exactly what she's going to say. Worthless report for that reason.
Posted by: Vera Smart on 7:51am Thu 5 Apr 07
[quote][bold]Ebenezer McGrory[/bold] wrote:
As soon as you see the name Professor Allyson Pollock you can predict exactly what she's going to say. Worthless report for that reason. [/quote] [italic]Playing the man rather than the ball[/italic] there, aka [italic]ad hominem[/italic] argument which is a fallacy,
Worthless comment for that reason.
Ebenezer McGrory wrote:
As soon as you see the name Professor Allyson Pollock you can predict exactly what she's going to say. Worthless report for that reason.
Playing the man rather than the ball there, aka
ad hominem argument which is a fallacy,
Worthless comment for that reason.
Posted by: Paul, Edinburgh on 9:06am Thu 5 Apr 07
[quote][bold]Robert East Kilbride[/bold] wrote:
PFI and public-funded schemes NEW LABOUR Has continued with Tory policy, only with a new name, both New labour & Tory schemes are more expensive than public funded schemes. The money come from the same POT the main deference is : Money borrowed through PFI has a more expensive rate of interest. The government can borrow money at a much lower rate of interest so why are New Labour using this [bold]most expensive way???[/bold] [/quote] Money borrowed through treasury is cheaper because it is assumed to have no risk. Money borrowed through the private sector includes a premium to reflect the risk of, among other things, the risk of cost overruns. The difference that with PPP is that project risk is borne by the private companies - the tax payer will pay no more if there is a cost blow out, eg, the Scottish Parliament where the public purse funded the cost overrun. The fact that state borrowing is cheaper is an illusion (in terms of its relevance to PPP value for money) because it does not include the price of risk, which is a genuine risk to the state.
Secondly, when a PPP scheme is quoted as representing poor value on the basis that, for example, a £100m capital spend ends up costing £500m through PPP, the true position is misrepresented. The £500m would not only include the cost of the bricks and mortar: it would also include the cost of servicing the project, eg, heating, maintenance, full life-cycle costs (replacement boilers etc), janitors, cleaning staff, utility costs,etc - as well as interest on the money borrowed to fund the capital spend. It is on this whole of life cost basis that PPP schemes are assessed when they are measured for value for money.
A whole of life approach also creates increased certainty over the performance of the school or hospital over the project life, eg, 30 years. This avoids the position we are in now where some schools built in the 70's are now decrepit and are not fit for purpose.
Robert East Kilbride wrote:
PFI and public-funded schemes NEW LABOUR Has continued with Tory policy, only with a new name, both New labour & Tory schemes are more expensive than public funded schemes. The money come from the same POT the main deference is : Money borrowed through PFI has a more expensive rate of interest. The government can borrow money at a much lower rate of interest so why are New Labour using this most expensive way???
Money borrowed through treasury is cheaper because it is assumed to have no risk. Money borrowed through the private sector includes a premium to reflect the risk of, among other things, the risk of cost overruns. The difference that with PPP is that project risk is borne by the private companies - the tax payer will pay no more if there is a cost blow out, eg, the Scottish Parliament where the public purse funded the cost overrun. The fact that state borrowing is cheaper is an illusion (in terms of its relevance to PPP value for money) because it does not include the price of risk, which is a genuine risk to the state.
Secondly, when a PPP scheme is quoted as representing poor value on the basis that, for example, a £100m capital spend ends up costing £500m through PPP, the true position is misrepresented. The £500m would not only include the cost of the bricks and mortar: it would also include the cost of servicing the project, eg, heating, maintenance, full life-cycle costs (replacement boilers etc), janitors, cleaning staff, utility costs,etc - as well as interest on the money borrowed to fund the capital spend. It is on this whole of life cost basis that PPP schemes are assessed when they are measured for value for money.
A whole of life approach also creates increased certainty over the performance of the school or hospital over the project life, eg, 30 years. This avoids the position we are in now where some schools built in the 70's are now decrepit and are not fit for purpose.
Posted by: David, EK on 10:07am Thu 5 Apr 07
[quote][bold]Paul[/bold] wrote:
[quote][bold]Robert East Kilbride[/bold] wrote: PFI and public-funded schemes NEW LABOUR Has continued with Tory policy, only with a new name, both New labour & Tory schemes are more expensive than public funded schemes. The money come from the same POT the main deference is : Money borrowed through PFI has a more expensive rate of interest. The government can borrow money at a much lower rate of interest so why are New Labour using this [bold]most expensive way???[/bold] [/quote] Money borrowed through treasury is cheaper because it is assumed to have no risk. Money borrowed through the private sector includes a premium to reflect the risk of, among other things, the risk of cost overruns. The difference that with PPP is that project risk is borne by the private companies - the tax payer will pay no more if there is a cost blow out, eg, the Scottish Parliament where the public purse funded the cost overrun. The fact that state borrowing is cheaper is an illusion (in terms of its relevance to PPP value for money) because it does not include the price of risk, which is a genuine risk to the state. Secondly, when a PPP scheme is quoted as representing poor value on the basis that, for example, a £100m capital spend ends up costing £500m through PPP, the true position is misrepresented. The £500m would not only include the cost of the bricks and mortar: it would also include the cost of servicing the project, eg, heating, maintenance, full life-cycle costs (replacement boilers etc), janitors, cleaning staff, utility costs,etc - as well as interest on the money borrowed to fund the capital spend. It is on this whole of life cost basis that PPP schemes are assessed when they are measured for value for money. A whole of life approach also creates increased certainty over the performance of the school or hospital over the project life, eg, 30 years. This avoids the position we are in now where some schools built in the 70\'s are now decrepit and are not fit for purpose. [/quote] Interesting Paul,
Regards your first paragraph .
Why should additional monies have to be paid to a construction company because of a cost over run?
Paul wrote:
Robert East Kilbride wrote: PFI and public-funded schemes NEW LABOUR Has continued with Tory policy, only with a new name, both New labour & Tory schemes are more expensive than public funded schemes. The money come from the same POT the main deference is : Money borrowed through PFI has a more expensive rate of interest. The government can borrow money at a much lower rate of interest so why are New Labour using this most expensive way???
Money borrowed through treasury is cheaper because it is assumed to have no risk. Money borrowed through the private sector includes a premium to reflect the risk of, among other things, the risk of cost overruns. The difference that with PPP is that project risk is borne by the private companies - the tax payer will pay no more if there is a cost blow out, eg, the Scottish Parliament where the public purse funded the cost overrun. The fact that state borrowing is cheaper is an illusion (in terms of its relevance to PPP value for money) because it does not include the price of risk, which is a genuine risk to the state. Secondly, when a PPP scheme is quoted as representing poor value on the basis that, for example, a £100m capital spend ends up costing £500m through PPP, the true position is misrepresented. The £500m would not only include the cost of the bricks and mortar: it would also include the cost of servicing the project, eg, heating, maintenance, full life-cycle costs (replacement boilers etc), janitors, cleaning staff, utility costs,etc - as well as interest on the money borrowed to fund the capital spend. It is on this whole of life cost basis that PPP schemes are assessed when they are measured for value for money. A whole of life approach also creates increased certainty over the performance of the school or hospital over the project life, eg, 30 years. This avoids the position we are in now where some schools built in the 70\'s are now decrepit and are not fit for purpose.
Interesting Paul,
Regards your first paragraph .
Why should additional monies have to be paid to a construction company because of a cost over run?
Posted by: Bill Forbes, Cambuslang on 10:11am Thu 5 Apr 07
That could be accepted Vera, but you would also have to accept that perhaps Dr Pollock’s argument is ad hominem circumstantial in that she simply points out that the Government, through the Treasury, has elected to show the best position for its argument.
Her emphasis is on the Treasury actions being biased but this does not lead her to conclude that PFI is bad – but she goes a long way to inferring such. Crucially she washes over the opinion of the independent National Audit Office who also in effect criticised the Treasury (albeit in a less melodramatic fashion) by marking down their claims (see above). Dr Pollock’s research allows her to do no such thing; she just kicks up some dust some five months after her last attempts. But I suppose timing is everything.
Given Dr Pollock’s predisposition against PFI she can hardly be seen as unbiased herself.
To paraphrase another lady who used to grab the headlines:
[bold]“Well, she would say that, wouldn’t she?”[/bold]
That could be accepted Vera, but you would also have to accept that perhaps Dr Pollock’s argument is ad hominem circumstantial in that she simply points out that the Government, through the Treasury, has elected to show the best position for its argument.
Her emphasis is on the Treasury actions being biased but this does not lead her to conclude that PFI is bad – but she goes a long way to inferring such. Crucially she washes over the opinion of the independent National Audit Office who also in effect criticised the Treasury (albeit in a less melodramatic fashion) by marking down their claims (see above). Dr Pollock’s research allows her to do no such thing; she just kicks up some dust some five months after her last attempts. But I suppose timing is everything.
Given Dr Pollock’s predisposition against PFI she can hardly be seen as unbiased herself.
To paraphrase another lady who used to grab the headlines:
“Well, she would say that, wouldn’t she?”
Posted by: James, Mearns on 10:54am Thu 5 Apr 07
The use of selective data is not new, sometimes out of laziness but always intellectually dishonest, and without wishing to suggest that the NAO have indulged in any "spin" (that'll be another department) I reckon Prof Pollock and her team make a strong point.
A scan of large PFI projects whose true costs are known suggests the total cost is 3 to 4 times the contract price, and while this of course includes a large element of running costs it is frustrating to access a Full Business Case for a £180m PFI Health project only to find that tables of financial data are excluded on grounds of commercial confidentiality - where there was only one bidder.
What price transparency, open government, accountability?
The use of selective data is not new, sometimes out of laziness but always intellectually dishonest, and without wishing to suggest that the NAO have indulged in any "spin" (that'll be another department) I reckon Prof Pollock and her team make a strong point.
A scan of large PFI projects whose true costs are known suggests the total cost is 3 to 4 times the contract price, and while this of course includes a large element of running costs it is frustrating to access a Full Business Case for a £180m PFI Health project only to find that tables of financial data are excluded on grounds of commercial confidentiality - where there was only one bidder.
What price transparency, open government, accountability?
Posted by: martin, clydebank on 11:43am Thu 5 Apr 07
superschools in clydebank, 100 million pfi, over 30 years, profit 300 million, our childrens education run by private companies who are only interested in their shareholders, new labour should be disgusted by this policy. then again they are just as bad as the tories. they will get a gubbing in this area due to their superschools policy, hope you are reading this des mc nulty, our ex msp.
superschools in clydebank, 100 million pfi, over 30 years, profit 300 million, our childrens education run by private companies who are only interested in their shareholders, new labour should be disgusted by this policy. then again they are just as bad as the tories. they will get a gubbing in this area due to their superschools policy, hope you are reading this des mc nulty, our ex msp.
Posted by: www.savemonklandsa-e.org.uk, Lanarkshire on 1:14am Fri 6 Apr 07
PFI is the kiss of death for services around the country. It results in squeezed budgets and goes hand-in-hand with cuts in beds and services.
The NHSFirst party is working on a new policy to replace PFI which will be announced later this month. Keep an eye on the website.
PFI is the kiss of death for services around the country. It results in squeezed budgets and goes hand-in-hand with cuts in beds and services.
The NHSFirst party is working on a new policy to replace PFI which will be announced later this month. Keep an eye on the website.
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