Hutton defends PFI, criticises lack of govt investment

Lord Hutton has made his first major intervention in the PFI debate since becoming chair of the Association of Infrastructure Investors in PPPs (AIIP), defending the model and insisting more private investment will be needed in future infrastructure development.

Speaking on the Radio 4 Today programme, the former Labour minister was responding to a BBC report suggesting that PFI in schools had not been value for money and warning that many schools could face significant increases in PFI costs due to the fact that repayments are linked to inflation.

Lord Hutton argued that the problem is less to do with the contracts themselves, and more to do with the fact that “school budgets haven’t risen in line with inflation” in recent years.

“When these contracts were let, there was an inflation-proofing mechanism built into that, because all the services and repairs in those contracts are exposed to what is happening in the marketplace and in order to get value for money, there had to be a proper measurement of inflation built into those contracts.”

In March last year, then-schools minister Nick Gibb responded in Parliament to a question on the impact of inflation on PFI schools, saying that while “element of the payment owing to PFI contractors is typically index linked”, the impact of rising inflation “is not an issue that is unique to PFI contracts”.

The BBC also criticised the inflexibility of PFI contracts, with one headteacher bemoaning the fact that his school is locked into paying for the grass to be cut to a certain level, when he would prefer to save some money and let the grass grow longer.

However, Lord Hutton pointed out that contracts are “capable of being varied by both parties”, although he did acknowledge that there are lessons to be learned around how contractual relationships between the parties are developed, and how individual schools can be brought into discussions where a local authority is party to the contract.

He insisted that such lessons would be vital for the future of infrastructure in the UK: “We all know there is going to be a scarcity of capital funding coming from government…If we want to go on investing in schools and hospitals in the way we did 20 years ago, we are going to have to use the vast resources of the private sector to do that.”