The Facts about Public Private Partnerships and PFI

PPP projects were three times as likely to be built on time and on budget when compared to traditional public procurement, according to a census by the National Audit Office (2002) and a Government survey (1999). 

The National Audit Office report ‘Lessons learned: private finance for infrastructure’, released in March 2025 stated clearly that Public Private Partnership (PPP) projects are “usually delivered on-time and on-budget”.

A recent report from the NHS Confederation found that PFI projects “appear to offer better value for money than the recent New Hospitals Programme (NHP), once delays and overspend costs are accounted for.”

The point about PFI projects being more likely to be delivered on time and on budget is not linked to the accounting treatment. Securing a way to unlock what the NAO in its March 2025 report called a “£1 trillion opportunity” to invest in infrastructure, while maintaining the Chancellor’s fiscal rules would be a win-win for the UK. 

In an international context, many other countries use PPP without any consideration for UK accounting treatment, emphasising different value drivers as reasons to use the model. New Zealand’s most recent PPP framework, for example, emphasise that PPP is viewed as ‘a project delivery model which utilises private capital for the incentives this provides rather than cash flow spreading benefits or to move project obligations off-balance sheet’.  

In 2012 HM Treasury noted that PFI assets "are maintained to a high standard throughout their lives".  

Similarly, the NAO’s PFI and PF2 report stated that, "PFI Contracts stipulate that buildings have to be maintained to a specified standard… our previous analysis has shown that contractually agreed standards under PFI have resulted in higher maintenance spending in PFI hospitals… respondents to our 2017 survey tended to consider that maintenance standards were higher under PFI" [when compared to the public estate]. 

What PFI did was ringfence maintenance of our public buildings with the result that maintenance spending under PFI was impervious to budgetary cuts from 2010 onwards which has given rise to the £49bn maintenance backlog and related life safety risk in the non-PFI estate.

We want to support Britain to get building and invest in our social infrastructure - schools, hospitals and other public buildings. 

The UK is now a ‘low investment nation’: since 2000 investment has averaged 2.5% of GDP, less than two-thirds of the OECD average.

There’s an urgent need to invest in our critical infrastructure. Four in every ten hospital buildings are more than 40 years old, and one in seven hospitals predates Nye Bevan’s landmark creation in 1945.  Schools with aerated concrete need urgent attention, and we need to invest in our prisons system to cope with the numbers of prisoners. 

That affects services - the NAO pointed to 5,400 clinical service incidents occurring in the NHS every year due to property and infrastructure failures.

Health sector leaders estimate that the NHS alone needs an additional £6.4 billion per year in capital investment over the next three-year Spending Review, and overall there is a £49 billion maintenance backlog in public buildings according to the NAO.

The private sector assumes much of the risk in projects. The public sector does not bear all of the risk, in fact, this is highly limited (by design). In most cases, and to comply with the balance sheet treatment, this has been substantially i.e. over 50% transferred to the project sector, including the typically most significant risk of construction risk. The public sector pays an amount that is not to be exceeded, with the private sector provider managing all the risks appropriately in order to deliver the specified output.

PFI payments, called unitary charges, are paid monthly by the public sector to Special Purpose Vehicles. The unitary charge is made up of debt repayments, service costs and lifecycle maintenance and sometimes, but not often, utilities. 

Some media articles make spurious claims about costs, which take the monthly payments and divide them by the number of works in a month to generate misleadingly high-cost estimates.

Assessing the value for money of PFIs demands true comparisons which must account for the fact that PFIs are maintained and lifecycled, with assets replaced when they are beyond their economic life, to far higher standards than the non-PFI estate.

As the NAO noted in 2009, "Public bodies using private finance are normally satisfied with the services provided by contractors" with "high levels of satisfaction" being described in the report.  

User satisfaction numbers also appear to be strong and arguably reflect the overall quality of the PFI estate. The 2006 Partnerships UK report found that 66% of respondents felt performance was either "very good" or "good", and 30% described it as "satisfactory". Ipsos Mori conducted a similar survey in 2008; 73% of respondents across 151 projects rated performance as good or very good. Only 4% rated the service as poor.

The NHS LIFT programme has successfully delivered a large number of modern, purpose-built primary care and community health facilities across England, many of which replaced outdated or unsuitable buildings. Surveys of public sector partners have consistently found high levels of satisfaction with the quality of construction, maintenance standards, and the ability of LIFT buildings to adapt to changing service needs over time.

PFI ringfencing has been an important safeguard to ensure the maintenance of the public estate. The current £500bn infrastructure funding gap and £49bn maintenance backlog would both likely be even more significant in the event that this had not occurred. 

It is clear that over a long contract term, requirements of the public sector will inevitably change, and this was provisioned for within the contract documentation. PFI schemes can be descoped/Service Level Agreements reduced through agreement to achieve savings. Many also contain regularised reviews to assess the cost of services against comparable benchmarks and by testing with the wider market.

All contracts have mechanisms within them for use in enacting a variation, to safeguard value for money through the use of pre-agreed schedules of rates, or the need for multiple quotes or prescribed procurement procedures to competitively select and engage firms for the delivery of works.

Almost every other Western country in the world uses a version of Public Private Partnerships (PPP) to build the hospitals and other public assets they need. Ironically, it was the UK which pioneered these but no longer benefits from their use in new infrastructure projects in England.

Although the Private Finance Initiative (PFI) model was discontinued in the UK in 2018, similar models have continued to be used in both Scotland and Wales. Most notably, the Mutual Investment Model (MIM) has been employed in Wales for £1.39bn of capital projects to date.  The MIM was also adopted by the Scottish Government in 2019. No contracts have as yet been agreed in Scotland however, but other similar models are used. 

Other models have been employed internationally in the plethora of jurisdictions that use Public-Private Partnerships including the progressive P3 model in Canada and the precinct model in Australia. 

There is growing discussion about reintroducing private finance into UK public infrastructure, particularly for NHS hospitals, with a focus on alternative PPP models that avoid past PFI issues. Health Secretary Wes Streeting stated he is “very sympathetic to the argument that we should try and leverage in private finance” but emphasised the need to “tread cautiously and carefully” to avoid excessive costs. NHS England’s former Chief Amanda Pritchard reinforced this, saying, “I think we now must consider private capital investment in the NHS” to improve buildings and technology.

The NHS Confederation has urged ministers to lift restrictions on private funding, calling the current system “broken”. Parliamentary discussions, including the Financial Secretary to the Treasury, Lord Livermore’s statement that Labour is “absolutely committed to harnessing private investment”, suggest that a revived PPP model is under active consideration, especially as part of Labour’s 10-year infrastructure plan, due to be published in June 2025. 

The Government is looking at lessons learned and the future, as Lord Livermore told Parliament: “the Infrastructure and Projects Authority believes that there is an opportunity for the public and private sectors to reset relationships, improve performance and deliver high-quality public facilities and services.”