'Call a handyman to fit a notice board? Oh no, you'll need a quote from the PFI company'

The historian AJP Taylor once observed it was prudent not to have an opinion on Middle Eastern affairs. Because of passions aroused by the situation in Israel, Taylor argued, one would sink steadily into an unforgiving mire of unreason. Better leave well alone.

The nearest equivalent in public finance is the private finance initiative. It is hard to be neutral about it. For instance, Confederation of British Industry director of public services Neil Bentley wants a 'rational debate - open and honest dialogue free of preconceptions'.

Sounds good. But he is plainly in favour of PFI and can't resist the old canard: 'We must never forget what went before - buildings delivered late and over-budget; the public told to like or lump the services offered; crumbling facades and murky finances.'

Which doesn't quite reflect the world I knew when minding an NHS capital programme two decades ago. Our hospitals, even then, were built by private contractors, within specs largely drawn up by private architect firms. It would have been nonsense for the NHS to employ an army of building workers.

But the myth survives. It conveniently positions PFI as quicker and more reliable; and whatever you think, it's more than that. And PFI deals are hardly a model of transparency when compared with the traditional capital funding route: borrow the money, then pay it back over the life of the building.

Two recent reports are fuelling the debate. One, published in May by the influential Commons public accounts committee, Update on PFI Debt Refinancing and the PFI Equity Market, addresses two of the more obscure yet important aspects of PFI: refinancing, and the emerging secondary market in PFI equities.

The report roundly challenges the high levels of profit investors have been allowed to make from refinancing deals, suggesting that in the early days of PFI local officials lacked the expertise to negotiate the best possible deals.

The committee also criticises the growth of a secondary market in PFI equities: in effect, a trade in the rights to guaranteed long-term government money. Such a market has always been an inherent part of the PFI, but its impact is that ownership and accountability for delivering services to NHS hospitals becomes unclear in the extreme.

The growth of the equity market is linked, in some eyes, to company manoeuvres to avoid sharing refinancing gains with the NHS on the 50:50 basis agreed in 2003.

The second report curiously remains unpublished. Last month HSJ outlined the content of an unpublished National Audit Office report on PFI-financed hospitals released in draft form under the Freedom of Information Act (see 'Shelved report exposes PFI management problems').

The NAO had announced its intention to review the performance of PFI hospitals in 2005, but later cancelled the study, explaining that the 'evidence collected was too mixed and not sufficiently conclusive to justify a report to Parliament on the value for money'.

The NAO report, on the operational record of the first wave of PFI hospitals, concludes they were mostly delivered on time and within budget. But critics have pointed out that this is not so difficult to achieve if the budget in question equates to the contract sum, since after this stage of negotiation is reached the costs to the client are fixed.

They also draw attention to the murky 'risk factor' (between 1 and 22 per cent of cost) applied to the conventional procurement alternatives, prior to the conclusion that PFI represents good value.

The main thrust of the NAO report, however, is the day-to-day performance of PFI hospitals, and it offers a sorry story of high running costs, poor quality and inflexibility. Call a handyman to fit a notice board? Oh no, you'll need a. quote from the PFI company for 'supply and fit and life cycle maintenance'. That will be£860 for five, please.

At Norfolk and Norwich University Hospital trust, 1,600 'minor works variations' over two years cost£1.2m: an average of£750 each. And in the event of poor performance, 12 out of the 19 first-wave hospitals felt the financial deductions they could impose were too small to motivate the companies to change.

This reported rapacity on the part of PFI companies will be seen by the anti-PFI lobby as evidence that the scheme is intrinsically flawed. But it's not the first time a worldly wise contractor has taken advantage of a naive or gullible client. 'Marry in haste, repent at leisure', goes the old adage, and the NHS will be paying for early optimism for many years.

Yet this alleged poor performance may be as much a red herring as the reported efficiency of building contractors. In economic terms the crucial underlying issue with PFI is the fairness of the way payments are spread between generations of users.

Traditionally in our public finance arrangements we have done our best to match today's claims on resources with today's loan repayments, ensuring assets are passed to the next generation of users free of debt. But in the early 1990s the Treasury hit on PFI as a wheeze to cut taxes yet maintain capital spending. Instead of government borrowing, why not borrow from the banks?

It was a time of smoke and mirrors, with large public buildings that miraculously appeared on no balance sheet. But a decade or more on, the reality is clearer. In our short-term rush to cut public spending we have passed on a higher financial burden to our children. Older buildings go unrenewed as budgets are raided. Newer assets are encumbered with debt; and we are tied into long-term agreements for some services we no longer need.

Have you ever contemplated taking out one of those new mortgages that run for so long your children will inherit the debt? PFI's a bit like that, but they also inherit a long-term contract for garden maintenance even after you gravel over the lawn.

Noel Plumridge is an independent consultant and former NHS finance director.