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The Private Finance Initiative and Public Sector Finance

Author

Listed:
  • Rob Ball

    (Department of Management and Organisation, University of Stirling, Stirling FK9 4LA, Scotland)

  • Maryanne Heafey

    (Queen Margaret University College, Clerwood Terrace, Edinburgh EH12 8TS, Scotland)

  • David King

    (Department of Economics, University of Stirling, Stirling FK9 4LA, Scotland)

Abstract

Traditionally, when the public sector wanted more capital assets, it borrowed funds for the purpose. Under the Private Finance Initiative (PFI), private consortia borrow funds to build assets and then, in return for a charge, use them to provide services for the public sector. The authors explore the implications for the public finances of using the PFI. A widely held belief, which has been put forward by the Treasury, is that using the PFI allows investment in assets used by the public sector to grow, even within public spending limits, because PFI investments fall outside the ambit of public borrowing. However, the authors show that if a constant amount of spending is transferred every year from traditional finance to PFI finance, then the fall in public borrowing will diminish over time and may eventually wholly disappear. So, even if some PFI finance is used every year, the scope for extra investment will diminish and may eventually disappear. They also show that, if PFI finance is used, then the required tax yield for a given level of investment may be permanently higher or permanently lower. In addition, they show that, even if a switch to PFI did reduce both public borrowing and taxes, then it might not facilitate much extra investment.

Suggested Citation

  • Rob Ball & Maryanne Heafey & David King, 2002. "The Private Finance Initiative and Public Sector Finance," Environment and Planning C, , vol. 20(1), pages 57-74, February.
    • Handle: RePEc:sae:envirc:v:20:y:2002:i:1:p:57-74
    DOI: 10.1068/c0045
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    References listed on IDEAS

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    1. John Hall, 1998. "Private opportunity, public benefit?," Fiscal Studies, Institute for Fiscal Studies, vol. 19(2), pages 121-140, May.
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    Cited by:

    1. McQuaid, Ronald W. & Scherrer, Walter, 2009. "Changing reasons for public private partnerships," Working Papers in Economics 2009-2, University of Salzburg.
    2. Paul du Gay & Yuval Millo & Penelope Tuck, 2012. "Making Government Liquid: Shifts in Governance Using Financialisation as a Political Device," Environment and Planning C, , vol. 30(6), pages 1083-1099, December.

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