PFI becomes less private

 

The chancellor is changing the private finance initiative (PFI) to make it more public and less private.

The last government financed the building and maintenance of vast numbers of schools, hospitals and other expensive investments by asking the private sector to bear the big costs, in return for regular payments from the public sector.

But the Treasury under George Osborne became concerned that huge long-term liabilities were being created for taxpayers - and that lousy negotiation by civil servants was allowing private companies to make huge windfall profits.

So in the Autumn Statement on Wednesday George Osborne will unveil what will be called Private Finance 2 (PF2) - which will involve the public sector taking stakes of up to 49% in individual private finance projects (20% stakes are likely to be typical) and appointing a director to the boards of each project.

This is to ensure that the taxpayer gets a share of any profits from the deal.

The BBC's Robert Peston: Private companies have made excessive profits

Other innovations will be that each private finance project will have to publish its financial performance every year and the Treasury will publish a running total of taxpayers' cumulative private finance liabilities - to allay concerns that these liabilities are becoming unaffordable.

Also there will be an attempt to speed up the signing of deals, or the procurement process - which can take up to five years at the moment - by setting an 18-month deadline (at which point, any public sector money allocated to the project would be reallocated).

Contracts under PF2 are also supposed to be smaller, simpler and less leveraged (they will involve less debt finance).

So they will no longer include what is known as soft facilities management, or contracts for catering, cleaning, security and IT.

And in the past a typical PFI deal would be funded to the tune of 90% by debt, but that debt proportion will fall to 80%.

If these reforms are designed to make the contracts less speculative, the Treasury has resisted pressure to change contracts to explicitly penalise those investors who sell their PFI projects early to generate vast profits.

The Treasury thought about introducing clauses that would have explicitly punished those investors who trade their PFI stakes before the expiry of contracts but feared these investors would have increased what they charge to be involved in the first place.

Also, in a separate but linked initiative, the Treasury has renegotiated existing PFI deals to find £2.5bn of savings over the lifetime of the contracts - which is £1bn more than it originally hoped.

In today's money, future PFI liabilities for taxpayers are £144bn, according to the Office for National Statistics.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

Can Balls be just austere enough?

Can Ed Balls persuade investors he would reduce Britain's public sector deficit just enough, while not demoralising Labour supporters who want an end to the long years of austerity?

Read full article

More on This Story

More from Robert

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +6

    Comment number 93.

    Another program mismanaged by the Government, which now is trying to plug loopholes & make other adjustments. Too much of this stuff seems to happen after the horse escapes the barn...I also note Treasury has resisted pressure to change contracts to explicitly penalise those investors who sell their PFI projects early to generate vast profits.
    Why?
    Do these vast profits go to the taxpayers?

  • rate this
    +3

    Comment number 92.

    An Idea for Osborne.
    That's doomed to failure then!

  • rate this
    +11

    Comment number 91.

    So, basically PF2 just limits rip off of taxpayers money to a limit of 51% of any scheme/scam, instead of 100%

    That would be relatively little different to banning J Saville from just 49% of hospitals - outcome the same, but improved stats for political propaganda & greater complexity to hide taxpayer increased liabilitys

    I bet the private "cut" / profits will be even more for less provision

  • rate this
    0

    Comment number 90.

    #85 totally agree another failed labour policy.

    wonder if anyone has done a PFI projects to constitiunecy analysis,

    were laobour in effect buy votes at the cost to e paid for by the grandchildren of the nation ?

  • rate this
    +9

    Comment number 89.

    "lousy negotiation by civil servants was allowing private companies to make huge windfall profits"

    How many of those civil servants ended up on the boards of the private companies? Has anyone looked into this? Perhaps the BBC could?

    http://www.telegraph.co.uk/news/uknews/defence/8310344/MoD-halts-helicopter-deal-as-police-probe-irregularities.html

  • rate this
    +4

    Comment number 88.

    Moneydude I would like to think they said "lets try this" as me thinks its more like "who cares how much it costs we wont be here to pick up the pieces " cynical I know but but racking up debt on the taxpayers credit card with no comeback makes me despair of domocracy

  • rate this
    +8

    Comment number 87.

    PFI is an expensive flawed concept - it is a waste of money and severs an artery of public finances.

    It really worries me when incompetent governments introduce things like PFI that costs us the earth. It is almost as if they say "let's try this and see if it works!"

    Private companies are on a win-win with this, and as always the taxpayer is on yet another lose-lose!

  • rate this
    +2

    Comment number 86.

    81.CO
    You'd think wouldn't you, however I have first hand experience of working within an organisation that actually carried out these functions for both sides on numerous occasions.
    Not one to stick up for the politicans or civil servants I would say that in the vast majority of occasions it was just incompetence rather than corruption. Although payments had been muted.

  • rate this
    +2

    Comment number 85.

    PFI makes the banking scandal look like pocket money.

    Labour ran up £2 trillion of PFI debt that it now conveniently ignores when it claims the country can afford to borrow more.

    Not sure whether it was gross incompetence or just electoral fraud. Either way, Labour cannot be trusted with our money.

  • rate this
    +10

    Comment number 84.

    I would have thought that by now PFI had been shown to be a flawed concept.

    Companies involved see them as a “Cash Cow” to be milked for the next 10, 20, 30, 40 years.

    They cost us the public far too much money in the long run (how much was that hospital being charged to change a light bulb).

  • rate this
    0

    Comment number 83.

    75.Allan Wilen
    Interesting that the public sector will share in the profits, will they also take a matching share of the risks?

    In addition, will they also take a matching share of the reward assocoated with the risk? I get the impression calculating future revenue will be flawed as the returns never seem to match the business case.

  • rate this
    +2

    Comment number 82.

    All these public sector cockups when is someone going to be made accountable ?
    If Brown was brought to court for gross criminal negligence for the fiscal disaster he has left our country in, then that may send a signal tonne public sector be more responsible with OUR money.
    The incompetence seen would not be allowed in the private sector or PLC's without accountability.

  • rate this
    +9

    Comment number 81.

    77.CL

    I'm no expert but aren't there already rules concerning conflicts of interest?

    If they proved ineffective, is this a result of (a) not being applied, or (b) being inadequate?

    In either case, the lack of subsequent remedial action has more than a whiff of corruption. And our political class has had that odour hovering around them for a while (Leveson, Vickers, expenses...)

  • rate this
    +17

    Comment number 80.

    I think PFI works like a mortgage. The the bank buys the house and you pay a mortgage and after X years you own the house. The problem appears to be that the house buyer (the Government) had no idea what was a good deal so they employed advisers who colluded with the bank to give the taxpayer a bum deal. It's like having a mortgage at 25% interest and being advised that it is a good deal for you.

  • rate this
    +5

    Comment number 79.

    My experience in NHS projects that were based upon PFI is that the providers were far more capable than the procurers so it was like "lambs to the slaughter" with respect to getting the right deal. Also many a CEO and Chairman were in the business of getting a new hospital in order to say "look what I've achieved" irrespective of what it meant financially for their successors.

  • rate this
    -8

    Comment number 78.

    Once the British Empire collapsed the only people the Establishment had left to rob were the British people themselves

    Mission accomplished

  • rate this
    +7

    Comment number 77.

    74.CO
    I agree that politicians and civil servants proved themselves inept at best but the paid advisers were supposed to know what they were doing. They should have put them straight and ensured that we the public got value for money. I know of one programme where the advisers worked for both sides making tens of millions only to have the programme fail within a year. The advisers just walked

  • rate this
    +10

    Comment number 76.

    I once attended a course on PFI sponsored by the Treasury

    The more I learned the more I realised what a gigantic rip off it was and when buildings became operational I was even more angry as to how anyone could have thought PFI was a good idea.

    Labour fell for it despite being warned countless times by the Public Service Unions.

    I hope lessons have been learned but I doubt it.

  • rate this
    -1

    Comment number 75.

    It is encouraging that the we will finally have a new PFI regime that will hopefully allow planned construction projects to proceed; providing an urgently needed boost to the economy as well providing infrastructure to support long term growth. Interesting that the public sector will share in the profits, will they also take a matching share of the risks?

  • rate this
    +2

    Comment number 74.

    67.CL

    Certainly true. But the actions of those with vested interests were entirely predictable.

    It is the duty of our elected representatives to look out for OUR interests. It is incumbent on them to resist lobbyists where their interests clash with the public interest.

    And... Where they fail, it is up to them to correct the problem.

 

Page 5 of 9

 

Features

  • FlagsNational identity

    After the referendum, have two Scotlands emerged?


  • Two sphinxes guarding the entrance to the tombTomb mystery

    Secrets of ancient burial site keep Greeks guessing


  • Tattooed person using tabletRogue ink

    People who lost their jobs because of their tattoos


  • Two people holding up the newly discovered head of Mithras, 1954Roman puzzle

    How to put London's mysterious underground temple back together


  • Deepika PadukoneBeauty and a tweet

    Bollywood cleavage row shows India's 'crass' side


BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.