PFI pipeline 'unaffected' by Treasury review

The review of PFI announced by chancellor George Osborne today will not halt any PFI projects currently in procurement, the government confirmed today.

This includes the £2bn Priority Schools Building Programme announced in August by schools secretary Michael Gove, as well as a pipeline of hospital projects. However, Lord Sassoon, commercial secretary to the Treasury, said today’s announcement of a review of PFI starting in December, marked “the end” of the current PFI model for new projects.

Sassoon said: “Today marks the point at which we say PFI as we know it comes to an end. There has to be a better way to involve the private sector.”

He added that any PFI jobs currently envisaged or in procurement would not be halted because of today’s announcement. Those due to close imminently will be allowed to proceed, with others not as far along the process encouraged to adopt lessons from the government’s changing policy as it emerges.

“The infrastructure programme needs to carry on. Those in the pipeline now will carry on under the current model. For the new Priority School Programme will be taking forward what we can, and it won’t be held up by this. Where we can build in enhancements to the model, that will be built in.”

According to the government’s draft construction pipeline, published in July, there is £6.5bn of PFI or PPP projects with earmarked funding in the next four years, in addition to the £2bn schools programme.

Osborne announced today that a review of PFI will be commenced on 1 December with a “call for evidence” from industry, the public sector and other interested parties in how the policy should be reformed. Lord Sassoon said the December call for evidence will not put forward a new model to replace PFI, but will lay down a number of principles around which it might be reformed and ask for comment.

The call for evidence will last for 10 weeks, but it is not yet clear when any firm proposals from the government for changes to PFI will emerge. Lord Sassoon indicated he would be “extremely disappointed” if no further consultation was published within a year, but declined to set a timetable. “We’ve made a pretty active series of changes since the formed was formed. We’re certainly intending to keep that momentum up.”

The Treasury said the call for evidence will be based around the following principles for a reformed PFI model:

• That it is less expensive and that uses private sector innovation to deliver services more cheaply;
• That it can access a wider range of financing sources, including pension funds;
• That it strikes a better balance between risk and reward to the private sector;
• That it has greater flexibility to accommodate changing public service needs;
• That it maintains the incentive on the private sector to deliver capital projects to time and to budget;
• That it delivers quicker and cheaper procurement process;
• That it gives greater financial transparency to projects, so that the public sector and taxpayer is sure it is getting a fair deal.

Sassoon said that as well as asking for formal response the Treasury will also be hosting a series of informal meetings, and critics of PFI will be given an opportunity to respond.

Geoffrey Spence, chief executive of Infrastructure UK, said: “This is a golden opportunity for the private sector to shape what the future holds for them. We’ve got an open door to be more radical.”