Chancellor George Osborne set to 'reassess' PFI

George Osborne George Osborne hopes to address the failings of PFI while retaining its benefits

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Chancellor George Osborne has announced a "fundamental reassessment" of the use of Private Finance Initiative contracts in a bid to cut costs.

Sir John Major introduced PFI in 1992 to allow private companies to finance, build and run public sector projects.

Mr Osborne said he wants to draw on private sector innovation at a lower cost to the taxpayer.

PFI costs have prompted criticism, with taxpayers facing rising bills over contract terms which can last decades.

The benefits of PFI including getting projects delivered on time and to budget, as well as giving the private sector the right incentives to effectively manage risk.

About 800 PFI contracts are currently in operation. The contracts have a capital value of about £64bn.

Some £267bn in repayments are due to be made to private companies over the next 50 years.

The Treasury said the review will aim to create a new model for using private-sector expertise to deliver public assets and services at a lower cost to the taxpayer.

Start Quote

We have consistently voiced concerns about the misuse of PFI in the past”

End Quote George Osborne Chancellor

Despite being introduced by the last Conservative prime minister, PFI was expanded dramatically by Labour as a means of enabling private investors to take on the financing, construction and operation of public-sector infrastructure projects.

A recent Commons Treasury Committee report put the cost of capital for a typical PFI project at 8%, which is double the long-term government gilt rate of around 4%.

The committee said paying off a PFI debt of £1bn could cost taxpayers the same as paying off a direct government debt of £1.7bn.

The coalition government has continued to use PFI but has announced a number of measures aimed at improving cost-effectiveness and transparency, such as abolishing PFI credits in last year's spending review.

Speaking on Monday, the chancellor said: "We have consistently voiced concerns about the misuse of PFI in the past and we have already taken steps to reduce costs and improve transparency.

'New delivery model'

"But the review I have announced today will take this a step further with a fundamental reassessment of PFI."

Mr Osborne said the government wants "a new delivery model which draws on private-sector innovation, but at a lower cost to the taxpayer and with better value for public services".

The Treasury said the review will create a model for private involvement in public-sector projects which is cheaper than PFI.

It also said the new model would access a wider range of financing sources and strike a better balance of risk between the private and public sectors.

A spokesman added that ministers hope to retain the benefits of the PFI model.


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  • rate this

    Comment number 121.

    Bizarre. Most of the comments forget that Thatcher and Major left our public infrastructure in tatters. PFI was a way of literally picking up the pieces at a cost that was less than 1% of the overall cost. It also continued the partnership between government and private enterprise. Any government must review and evolve ideas but the idea that PFI is inherently wrong was and remains incorrect.

  • rate this

    Comment number 120.

    Costs spiral out of control. Debts spiral out of control. Accountancy spirals out of control.......Cost centres here, there and everywhere and one gets the impression nobody knows what's actually happening......One thing seems certain, the taxpayers are losing out again and future taxpayers will be shouldering the burden...again.

  • rate this

    Comment number 119.

    113.Alan B

    "The Cons,yet again,do not want to take any form of responsibility for any thing they initiate"

    On what basis are you saying this? Because they're holding a review?

    That's equivalent to saying Rutherford split the atom, so it's his fault that Hiroshima and Nagasaki were bombed.

    Change the record; Labour expanded PFI beyond all reason, Major didn't.

  • rate this

    Comment number 118.

    113. Alan B - Wrong!!! See 110.

  • rate this

    Comment number 117.

    About time - start with the Defence contracts first and save billions. I was a budget manager with the MOD and the practices of certain "defence partners" was staggering.

    I hope the media investigates, the numbers will be a national scandal.

  • rate this

    Comment number 116.

    "£267bn in repayments are due to be made to private companies over the next 50 years."
    Rather less than we paid to bail out the hapless bankers and keep them in 7 figure incomes and bonuses and at least we actually got some useful things , hospitals and schools out of it.

  • rate this

    Comment number 115.

    PFI has never been about value for money.
    PFI has always been about involving the Private Sector, with little or no reasoned justification apart from "the private sector is better". Keeping the capital costs off the government's books, so it looks good to bodies such as the IMF. And then saddling the public sector with fixed costs for decades.
    The current government has signed-off PFIs as well.

  • rate this

    Comment number 114.

    Its about time the scandal of PFI was addressed , the cost of PFI is the equivalent of borrowing money from loan sharks where you pay considerably more back than you needed . Another Labour manipulation of government borrowing that got way out of control . Just as with the massive duty on fuel its the humble tax payer who is conned and has to pay for it all . Mr Osborne please sort it !!

  • rate this

    Comment number 113.

    The Cons,yet again,do not want to take any form of responsibility for any thing they initiate. This system was set up by the Cons and all it does is rake in money for the contractors which all they have to do is meet the very basic requirements in building work.Again,the people who really profit, are the people who have shares in this type of company-mostly Cons.

  • rate this

    Comment number 112.

    You are generous with your conclusion of "incompetence". The truth is the unhealthily cosy relationship between procuror and potential tenderer.
    I tried to remove certain tenderers from the select list based upon previous performance but always failed. Apparently we were getting a "square deal"; get it!

  • rate this

    Comment number 111.

    Good to hear..He needs to urgently. I trust the result will be significantly reduced benefits to those "investors".

    This dubious "off ledger" accounting practice is shown to be a licence to print money with minimal risk to the "investor".

    Result: Huge wealth for the few at the expense of the many.

    Example on current projects: Cost 60bn - Taxpayer repays 220bn; not bad if you can get it...!

  • rate this

    Comment number 110.

    PPP was originally a good idea, a good way of getting private investment for a public project. However in 99 Blair and Balls who had agreed to keep to the tories spending plans but wanted a 'legacy' in case they were voted out in 2001, hence we ended up with PFI. Have a look at the costs my local hospital (Southmead, Bristol) they are eye watering.

  • rate this

    Comment number 109.

    The private sector wishes to make a profit - fact.
    The public sector record shows very poor skills at major procurement - fact.
    The cost to the public sector (present and future potential) is visible prior to signing the contract - fact.
    The PFI model may be a long way off perfect and may have been used inappropriately in the past but nobody goes into the process, nor signs the contract, blind.

  • rate this

    Comment number 108.

    97.yewlodge "So why are so many government projects vastly over budget, late or not delivered at all?"

    At a guess. Poor specifications, little or no "failure to deliver" clauses built in to contracts, and the goals usually move frequently. Generally the government get what they ask for, problem is they don't ask well.

  • rate this

    Comment number 107.

    PFI should have introduced the benefits of private enterprise into the management and financing of public projects, reducing costs, waste and delays.
    Instead, incompetent procurement enabled businesses to maximise profit at vast expense to the taxpayer for decades to come.
    The Tories started this, then GB went overboard and mortgaged all our futures.

  • rate this

    Comment number 106.

    Looks like George is lining up his private company pals to "dip their bread" big time.
    At least when George leaves politics he'll have a seat on the board of the Banks he so loves and protects.
    don't worry about the rest of us George, we''l just keep paying the bills.

  • rate this

    Comment number 105.

    The mere mention of PFIs has always made me shudder.

    Their involvement in anything has often been the equivalent of a blank cheque drawn on the public coffers. And why? It's because contracts have been awarded without reference to cost. No competitive business can afford to operate like that.

  • rate this

    Comment number 104.

    HM Treasury 'in dark' over 'excessive' PFI profits headline:
    As the PFI was "off balance sheet" the Treasury did not care about the merits of PFI. If reimbursement was via tolling then the user paid. I recall Treasury staff laughing at the figures presented but said it was up to the Department whether it wanted to go ahead. Without PFI there would have been no project. It was a conspiracy!

  • rate this

    Comment number 103.

    Dear Mr Private Sector, will you please, please, please stop making lots and lots and lots of money, else David and I will start to stamp our feet very, very, very loudly. Yours, George. PS - Are you still going to offer us those jobs we spoke about?

  • rate this

    Comment number 102.

    OK! Did you get an OBE, MBE or CBE by any chance? If you did then you should give it back, repent and join in the condemnation to ensure that PFI is killed for once and for all.
    I note that you might agree about the funding. Is it also a fact that projects are designed to the minimum standards to last the life of the franchise? We will be left with a legacy of high remedial costs.


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