The long-term consequences of private finance in public services
Research by Anne Stafford into the use of private finance to run public services shows that the public often pays more while having less control.
For more than three decades the UK has embraced private finance as a way to finance, build, and increasingly deliver public services. From roads, bridges and hospitals to schools, GP surgeries and prisons, private finance has become deeply embedded in what were once core state responsibilities.
The use of such private finance across the public sector tends to attract fewer news headlines than it once did, but as the first generation of Private Finance Initiative (PFI) contracts expire, private finance still remains widely used for public service delivery, albeit in more fragmented, less visible ways than the high-profile policies of the past.
Public sector shoulders risks
Research led by Professor Anne Stafford at AMBS has been studying this shift and helping to reframe debates about costs, risk, quality, and accountability. She has been documenting how long-term private finance arrangements have repeatedly transferred risks back to the public sector, constrained local decision-making, and created new opportunities for profit extraction from essential services. Overall, her research explains why the public often pays more while having less control.
Said Professor Stafford: “Private finance was sold on the promise that it would transfer risk away from the public sector, deliver services more efficiently, unlock innovation and reduce long-term costs. Yet, reality has often looked quite different. Public bodies still shoulder considerable risk, costs have ballooned, and innovation has frequently been limited by rigid, decades-long contracts that leave little room to adapt to evolving needs.
“For instance, the present government’s decision to move back to rail nationalisation, with Network Rail and train operating companies returning to government hands, reflects the broader recognition that private finance has not always delivered better outcomes for citizens.”
Hidden costs and risks
As more first generation PFI contracts reach expiry, public bodies are discovering the scale of the challenges that Professor Stafford’s research anticipated.
As she adds: “We are now seeing how decades-long contracts, originally promoted on the promise of risk transfer, have instead produced a ‘risk boomerang’ that returns sharply to the public when things go wrong. The collapse of the London Metronet project and Carillion have been highly visible examples of how, when a major contractor fails, the state must step in, often at great cost.”
Across several studies Professor Stafford has demonstrated how long-term private finance contracts guarantee payments even when quality fails, leaving the public sector to absorb the consequences of such contract lock-in.
“We now see how flawed procurement and unclear maintenance oversight leading to poor asset condition, combined with expensive termination clauses, are leaving the public sector exposed,” she adds. “This separation between accountability and payment is a systemic flaw in many long-term private finance arrangements.”
Policy impact
Professor Stafford’s work has helped bring visibility to these issues to policymakers and regulators, informing wider debates about the future of privately financed infrastructure. By reframing these issues around accountability and public value, not just financial engineering, she has contributed to a broader recognition that private finance has often cost more, delivered less flexibility, and left the public with limited control.
A recent impact of her research has been to show how private finance is no longer confined to just physical infrastructure. Increasingly, it shapes the delivery of services themselves through a growing alignment of essential public services with investor-driven models that prioritise returns over long-term service stability.
She adds: “Going forward, more studies are needed as to how such financialisation has infiltrated core public services such as children’s homes, Special Educational Needs (SEND) provision, adult elderly care, health diagnostics and eye clinics, amongst others, where it is reshaping incentives and outcomes.
“As demand for public services grows, so does the appetite from private providers seeking stable, long-term revenue streams. Yet growth driven by financial opportunity rather than public need can distort priorities in three ways. Firstly, services may be located where profit is highest, not where need is greatest. Secondly, providers may prioritise cost-cutting over quality. And thirdly, public bodies may become dependent on private actors for essential capacity.”
Ethical questions
In areas such as social care or SEND provision, where users are often vulnerable, Professor Stafford says this raises deep ethical questions.
“These concerns matter because we do not yet have sufficient regulation, transparency or capital structure constraints in place. As the first generation of PFI contracts ends, we have an opportunity to rethink how we finance and deliver public services. Ministers ended PF2, the follow-up policy to PFI, in 2018, acknowledging inflexibility and fiscal risks. However, legacy contracts still drain budgets, and new private finance variants risk reproducing old problems.
“The question is not simply whether the private sector should be involved, but under what conditions, with what safeguards, and in whose interests. The lesson is clear. If we keep outsourcing essential capacity and relying on expensive private capital, we will keep paying more, but for less control, while investors continue to extract returns from public need.
“Instead, it is now time to rebuild public capability, plan for contract expiries years in advance, and reserve private engagement for tightly defined, genuinely risk-appropriate cases with transparent costs and clawbacks on excess profits.”