Public Finance Initiative: An overview

Public Finance Initiatives: An introduction

Public Finance Initiatives, also known as PFI, was a concept initially developed by the UK government in the 1990s, to try to create public-private partnerships. The initial idea was to find private capital or funds to finance public infrastructure projects. An idea that the public and private sector could work together successfully, each bringing its strength and know-how to the partnership. Since then, the concept has grown and has been embraced by many governments and public agencies, including multi-lateral agencies, such as the World Bank, which is replacing PFI in the developing world.  

PFI has been a way for the UK government to finance many public sector projects. These include projects, such as hospitals, roads, jails, railways, military barracks, buildings and medical centres. Many of these projects have been successful and some less successful. This has created a strong faction of those pro and those against PFI.

Benefit and challenges of Private Finance Initiatives

There are of course two sides to the coin. One side being that private finance initiatives can finance projects that the government could perhaps not finance on its own. Know-how and risk assurance strengths from the private sector can bring projects to fruition that otherwise may be mired in bureaucracy in the public sector.

There are claims that the private sector can manage projects, such as jails or waste management, which the government has not been able to run profitably. This means that projects that might falter in the public realm could succeed in the private sector. However, detractors feel that the government is using PFI to finance projects off budget, in effect increasing public sector debt and making it less transparent to the public. Also that in some projects the private sector is seemingly getting generous or unnecessary deals, subsidised by the government and tax payers.  

The truth is that there have been problems with PFI projects, some relating to accountability, some related to management. However, there have also been projects that have been extremely successful and showcase what public-private sector partnership can achieve, if done properly.

PFI audits to measure accountability

One of the measures to try to avoid problems and maintain transparency of projects has been through PFI audits. Audits are a way for professionals from the outside to evaluate the financial statements of a project and evaluate its risks and whether a project is achieving the goals it has set out to achieve. On a government level, such audits are undertaken by the National Audit Office (www.nao.org.uk). On the private sector side, private auditors are used to audit projects. The findings are then published in the organisation’s annual reports or financial statements. Such private sector auditors can, for instance, be pin-pointed from the Register of Statutory Auditors (www.auditregister.org.uk).

If you would like additional information regarding PFIs or would like to speak to one of accountants about a specific project, then please contact us.