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
    +1

    Comment number 161.

    The trouble is that the contracts were not properly scrutinised and we are now stuck with forking out some 200 Billions over and above the initial cost and the ludicrous situation whereby Hospitals are saddled with exorbitant charges for simple maintainance!!!
    With Blair/Brown they became a bribe to the electorate which,alas,worked!!!
    Hopefully,George Osborne can belatedly do something ?!!

  • rate this
    +7

    Comment number 160.

    It was pointed out at the time, and ignored by successive Gov'ts. PFI meant private companies paying for capital assets, then renting them to public sector for an agreed minimum term, during which time they could recoup their costs and interest. At the end they still own the asset and the public must renegotiate to continue using it. A veritable licence to print money.

  • rate this
    +1

    Comment number 159.

    157.thelevellers
    Another fine mess created by the tories.

    Not only are we in a recession, we also owe £267billion to big business.

    The sooner we get this shower of a government out the better.
    -----

    Labour signed the contracts - you know, with those 13 years they had? Either you can't read, or don't care to be informed.

    Oh, and we're not in a recession, either.

  • rate this
    0

    Comment number 158.

    156. theoldgoat. I think you misunderstand how it works if I may be so bold. PFI is the provision of private support and works without any ownership coming back to the public purse. What you are talking about is actual purchase via private provision, a totally different thing and I would suggest falls under the realms of the procurement office.

  • rate this
    0

    Comment number 157.

    Another fine mess created by the tories.

    Not only are we in a recession, we also owe £267billion to big business.

    The sooner we get this shower of a government out the better.

  • rate this
    -2

    Comment number 156.

    It is so easy to forget, or ignore, the fact that the Public Sector has to buy everything from the Private Sector anyway. All that PFI has done is cut out the bit in the middle.
    Building scores of schools and hospitals was always going to cost a vast amount, but with PFI you have it all done by the Private Sector, directly.

    More expensive, but that's what happens when you buy it all on credit!

  • rate this
    +3

    Comment number 155.

    really mr osbourne??? what review,by whom,fact is the deals are done ,the money is owed,and its the taxpayers who will be paying for it ,long after you have walked off into sunset...and as usual every successive govt will blame the one before,because no politician has the bottle to say"THE BUCK STOPS HERE"

  • rate this
    +2

    Comment number 154.

    The whole concept of PFI s makes no sense. Why on earth would you rent your house and put money into the pockets of your Landlord, particularly when you can afford to buy your own house without getting a mortgage?

  • rate this
    +1

    Comment number 153.

    Barn door? Horse? Bolted?

  • rate this
    +1

    Comment number 152.

    130. Thom .The PFI debacle representative of corporatist establishment in which moochers/ looters are suckling at the taxpayers lifeblood; enabled politicians promise the world while leaving the bill with our kids.
    =
    YES, and who did 90% + of All PFI PROJECTS - Gordon Brown, Nu Labour.

    Who is stopping it? G Osbourne, Conservative.

    Who gets the blame for its legacy? The current Govt! It's sad!

  • rate this
    +1

    Comment number 151.

    149.Whatshisname

    "PFI: How to get the shearers to shear the sheep, by pulling the wool over the eyes of the shepherds! Another wonderful legacy left by John Major!"

    Labour signed the contracts in question. Therefore, it is Labour's legacy.

    More anti-Tory nonsense. You make it clear that you can't handle objectivity, so you really don't deserve to have your silly comments entertained.

  • rate this
    +2

    Comment number 150.

    I as lower class person dont give a dam about pf all i know is myself and other people on benefits are going with out to pay for utility bills.The only people that are really going to suffer is the poorer end of society

  • rate this
    +2

    Comment number 149.

    PFI: How to get the shearers to shear the sheep, by pulling the wool over the eyes of the shepherds! Another wonderful legacy left by John Major!

  • rate this
    +2

    Comment number 148.

    Its a way of funding public spending without raising tax, & although conveniently for the anti-Tory brigade was thought of by J. Majors Govt.

    However, Gordon Brown is responsible for ~90% of PFI spend, but this is the fault of the Tories...of course! Its obvious..

    George Osborne reigning it in?, oh that's awful, more cuts!

    There are some people who just blame the Tories regardless of reality.

  • rate this
    0

    Comment number 147.

    Its a government-supported scam....

  • rate this
    -2

    Comment number 146.

    "When will governments learn. PRIVATE companies exist to MAXIMISE profit. If you deal with them, they'll fleece you for everything they can. "

    They know all right, but are quite happy to continue. Public svs to private... I've said to my MP, "They only want money" but he just smiles. Sweet child.

  • rate this
    0

    Comment number 145.

    PFI has only one purpose to put public money into the hands of Bankers If it was run properly it could be good but these days nobohy wants a reasonable profit or a reasonable wage they want as much as they can get

  • rate this
    +6

    Comment number 144.

    I was involved with PFI in the NHS in the early days. I couldn't figure out how it would improve the "patient experience", as it was called then. All we have seen is a reduction in quality of service and an increase in the beaurocracy for complaints. It has made lots of wealthy people though.

  • rate this
    0

    Comment number 143.

    138. Eddy from Waring. Obviously the Conservative Accountants were much better than NU Labours in moving the true figures many columns to the right. As far as NU Labour are concerned I suggest you replace timidity by incompetence to an appalling degree. While not using the same extreme language post 140 does have a point. PPI was Conservative, PFI was Labour.

  • rate this
    +3

    Comment number 142.

    136.steve1955. Do you have direct experience of PFI procurement?
    It is fundamentally flawed and will never work.
    There is not enough room on HYS to represent my case but I can assure you that the argument against is overwhelming. It fails on cost, quality, durability and robustness to cater for future demands. The consortium is only interested in the duration of the franchise.

 

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