Autumn Statement: PFI reforms to be announced

Army barracks built built under a Private Finance Initiative PFI has been used to fund public projects such as army barracks, schools and hospitals

The government is expected to change the way it raises money for public projects such as schools and hospitals to ensure a better deal for taxpayers.

Chancellor George Osborne is set to announce the changes to the Private Finance Initiative (PFI) in Wednesday's Autumn Statement.

Under the plans, the taxpayer will take a share of up to 49% in new projects.

The current PFI regime has been criticised as being too generous to private contractors.

As well as allowing the taxpayer to take a share in profits from public infrastructure projects, the coalition says the new scheme, expected to be called PFI 2, will be quicker and more transparent.

It will allow the public sector to appoint directors to the boards of individual projects, as well as requiring the projects to publish financial performance figures every year.

The government has also renegotiated existing PFI deals to save £2.5bn, according to the BBC's business editor Robert Peston.

Rachel Reeves, Labour's shadow chief secretary to the Treasury, said the chancellor must explain "which frontline services, like the police and social care, he will cut further to pay for this latest U-turn".

"In last year's Autumn Statement, ministers boasted that their infrastructure plan would boost the economy, but none of the road schemes they announced have even started construction. The government needs to ensure that this funding urgently gets through on the ground."

'A way forward'

The previous government engaged the private sector to provide major funding for large numbers of schools and hospitals, in return for payments from the public sector.

But the Treasury has decided that this financing model is no longer appropriate at a time when government debt levels are so high.

Nick Bliss, a lawyer who has worked on PFI contracts for 20 years, told the BBC the changes should provide more of a partnership between the public and private sectors.

"From the private sector's perspective, what has really irritated them has been for the last year or two, there has been a total lack of consensus about the way forward.

"This at least will provide a way forward and these are the rules of the game, like them or loathe them," Mr Bliss, who works for the Freshfields law firm said.

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