The private finance initiative (PFI) was a United Kingdom government procurement policy aimed at creating "public–private partnerships" (PPPs) where private firms are contracted to complete and manage public projects. Initially launched in 1992 by Prime Minister John Major, and expanded considerably by the Blair government, PFI is part of the wider programme of privatisation and macroeconomic public policy, and presented as a means for increasing accountability and efficiency for public spending.

PFI is controversial in the UK. In 2003, the National Audit Office felt that it provided good value for money overall; according to critics, PFI has been used simply to place a great amount of debt "off-balance-sheet". In 2011, the parliamentary Treasury Select Committee recommended:

"PFI should be brought on balance sheet. The Treasury should remove any perverse incentives unrelated to value for money by ensuring that PFI is not used to circumvent departmental budget limits. It should also ask the OBR to include PFI liabilities in future assessments of the fiscal rules".

In October 2018, the Chancellor Philip Hammond announced that the UK government would no longer use PFI for new infrastructure projects; however, PFI projects would continue to operate for some time to come.

The private finance initiative (PFI) is a procurement method which uses private sector investment in order to deliver public sector infrastructure and/or services according to a specification defined by the public sector. It is a sub-set of a broader procurement approach termed public-private partnership (PPP), with the main defining characteristic being the use of project finance (using private sector debt and equity, underwritten by the public) in order to deliver the public services. Beyond developing the infrastructure and providing finance, private sector companies operate the public facilities, sometimes using former public sector staff who have had their employment contracts transferred to the private sector through the TUPE process which applies to all staff in a company whose ownership changes.

A public sector authority signs a contract with a private sector consortium, technically known as a special-purpose vehicle (SPV). This consortium is typically formed for the specific purpose of providing the PFI. It is owned by a number of private sector investors, usually including a construction company and a service provider, and often a bank as well. The consortium's funding will be used to build the facility and to undertake maintenance and capital replacement during the life-cycle of the contract. Once the contract is operational, the SPV may be used as a conduit for contract amendment discussions between the customer and the facility operator. SPVs often charge fees for this go-between 'service'.

PFI contracts are typically for 25–30 years (depending on the type of project); although contracts less than 20 years or more than 40 years exist, they are considerably less common. During the period of the contract the consortium will provide certain services, which were previously provided by the public sector. The consortium is paid for the work over the course of the contract on a "no service no fee" performance basis.

The public authority will design an "output specification" which is a document setting out what the consortium is expected to achieve. If the consortium fails to meet any of the agreed standards it should lose an element of its payment until standards improve. If standards do not improve after an agreed period, the public sector authority is usually entitled to terminate the contract, compensate the consortium where appropriate, and take ownership of the project.