Financing efficiency

Adrian Brown posted an excellent and thought-provoking piece earlier this week on government’s inability to price, distribute and understand risk in its efforts to improve public services. In it, he cited this week’s SMF paper on risks to the viability of the Work Programme, and the Treasury Committee’s recent report on the poor value for money offered by PFI for infrastructure projects. These two apparently unrelated policies, he argued, illustrate how attempts to push excessive risk onto contractors are a false economy for the taxpayer. That’s absolutely right: government needs to realise that more risk transfer doesn’t lead to better risk management. There are a variety of types of risk involved in each project. Government’s aim should be to transfer only those risks that it is within contractors’ powers to mitigate through innovation and efficient delivery. Indeed on that measure, the Ministry of Justice has a struggle on its hands to transfer much risk for re-offending outcomes without some deeper reform of the prison system. Brown also draws the parallel between PFI and payment by results (PbR) – the commissioning approach for the Work Programme – as off-balance sheet borrowing. That raises a further question: if the Treasury Committee thinks [...]