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
    +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
    +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
    -5

    Comment number 128.

    If PFI is controlled correctly I'm sure it's probably better than having lots of public workers running things because its clear to me there are usually too many of them, half of them are sick at any one time, half of them don't do any work and they have an expensive boss who's paid equivalent to a FTSE 100 company manager + public pension to boot.

  • rate this
    +11

    Comment number 126.

    PFI had only one purpose, to disguise additional public spending by making it off balance sheet i.e. it did not appear as public spending. It is a form of H.P. or loan.

    Providing the contract terms are reasonable to both parties it seems like basically a good idea. Both parties need to ownup to what it is and what the derived benefits are.

    Transparnecy is all I ask for.

  • rate this
    -9

    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.

 

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