Why Brown should grasp the PFI nettle

Treasury claims that a flag ship New Labour policy which has deeply divided its supporters offers value for money are based on data that is non-existent or false, says investigative journalist Allyson Pollock.

Research published this month seriously undermines Treasury claims for the cost-effectiveness of the controversial Private Finance Initiative (PFI) are an embarrassing challenge to prime minister in waiting Gordon Brown, who has placed its success at the heart of his fiscal policy.

Since 1999, government spokesmen have been recycling claims about public sector inefficiency and private sector efficiency in building programmes. Chief among these is that PFI projects come in on time and on budget. The Treasury claims that this is true of nearly all PFI projects, whereas most public projects are late and cost more than expected. But researchers at the University of Edinburgh's Centre for International Public Health found that the evidence the Treasury produces for these assertions is either non-existent or false.

The claim that public-sector schemes have average cost overruns of 73 per cent and time overruns of 70 per cent, is constantly repeated to support the claim that PFI is value for money. But on closer examination it transpires that the only figures the government is willing to release derive from false data commissioned by the government from the PFI industry.

When a PFI project is contemplated, Treasury rules require it to be compared with a notional non-PFI project, known as the public-service comparator, and to be shown to be "value for money". But in determining the value of the public-service comparator, the Treasury requires it to include cost and time overruns that it claims are typical in the public sector. On this basis, more than 800 PFI deals have been signed, accounting for around  £54bn of government investment and more than  £200bn of long-term debt repayments.

But of the five studies cited by the Treasury as proof of PFI efficiency, only one contains any data. Two reports by the National Audit Office were based on interviews with managers of PFI projects, and the authors themselves conclude that it is not possible to judge from such evidence how the method of procurement affected the results. A third study by a private company contains no comparative data to support the claim. A fourth, by the Treasury, remains under wraps, and repeated freedom of information requests have been refused on the grounds that "disclosure would be detrimental to the commercial interests of the specific PFI contractors".

The only report that contains any comparative data was commissioned from a consultancy and engineering firm called Mott Macdonald. This study is very curious. Full cost and time overrun details are provided for just three PFI schemes, although at the time of the study 451 PFI deals had been completed.

Mott MacDonald claimed that it had difficulty getting data on other projects. The report then compares these three with 39 public-sector schemes, although very little public procurement was going on at the time. What is more, of the 39 public-sector schemes, 20 are "non standard" - complex and difficult projects - whereas the three PFI projects are all standard. You don't have to be a statistical genius to conclude that this is hardly comparing like with like.

Mott MacDonald also used different starting points when comparing cases. They counted cost and time overruns for PFI projects from when the case was signed off, but they started counting at a much earlier stage for the public-sector projects. Yet Mott MacDonald well knew, as consultants to the PFI industry that one of the most striking aspects of PFI was that costs escalated between the initial tendering and the contract being signed off. Take the Paddington hospital PFI scheme for example: the proposed cost rose in real terms from  £411m in 2000 to  £894m at the time of the scheme's collapse in May 2005.

The government declares that it is determined to ensure that "a sound evidence base" is used to inform evaluation of PFI. But the only bit of evidence is false and the audit trail goes cold when public-private partnership deals are signed. It is high time that parliament and the tax-paying public was allowed to examine the evidence base that supports this multi-billion-pound policy which is so unpopular among traditional Labour Party members, trade unions and many members of the public.

A poll for BBC Scotland last month found that building and running schools and hospitals through public bodies was cited as the top priority by Scottish voters. As the general election draw near, Gordon Brown would do well to recognise that failure to allow scrutiny of PFI has serious implications not only for the future of public services but for the success of his own party.

* Allyson Pollock is author of NHS Plc: The Privatisation of our Health Care.