Re: We don't have a free market !!!!
Whilst I largely agree that PFI (and outsourcing necessarily public services to private companies in general) is a wasteful use of public funds to provide profit to said companies at our expense I have to say that the local and national government bodies that run these things tend to be massively inefficient and hobbled by regulation and the unions. It seems incredibly difficult to make effective change and it's never long before a new bunch get voted in and change policies/move goalposts, further reducing efficiency and undermining staff morale. This often seems to involve adding extra layers of management at further expense and increased bureaucracy.
I have personal experience of seeing PFI in action. There were two changes of management on the public side during the design and construction and the resulting building had a number of shortcomings, as did the resulting maintenance contract. Yet another management team then came in and spent lots of time/effort (=public money) arguing the toss and tinkering with the details. (BTW there is now ANOTHER management team in place on the public side and all this in under eight years! Efficiency? Yeah, we've heard of that)
One only has to look at the catalogue of IT project disasters that frequently feature in El Reg to confirm just how useless government is at these sorts of things.
Not sure what the solution is if assume that we ought to keep certain services entirely public (and I certainly do), how can we get efficient government run services? The electoral system coupled with the rise of the professional politician seems to guarantee short termism and zero accountability.