Tory plans to transfer risk to the private sector in a reform of PFI could kill off their attraction as investment opportunities, according to experts
This follows comments by shadow chancellor George Osborne, who said that, if elected, the Tories would scrap the controversial PFI method of funding public projects and replace it with an as yet unannounced alternative, which would transfer more risk to the private sector.
This is despite the fact that the government was forced in March to set up the Treasury Infrastructure Finance Unit to help fund £13bn in stalled PFI schemes because banks were already wary of lending to them.
The current PFI business model requires private partners to take an equity stake in the project rather than just being contracted to build or maintain it.
But Nick Prior, partner at professional services firm Deloitte, said Osborne’s hints that PFI partners might have to accept smaller profits in future would mean some contractors would be less likely to get involved in social infrastructure schemes.
There are concerns that Osborne’s comments imply the Tories are considering the route taken by the Scottish government, which last year introduced a “non profit distribution” system on PFI schemes which caps profits and has been perceived to have had a negative impact on the signing of PFI deals.
Prior said: “It would appear, based on comments Osborne has made, that he’s looking for a different risk return model. This would make it more attractive to government and less attractive to the contracting profession.”
Meanwhile, Jeremy Barker, a director at consultant KPMG, said if there was an attempt to transfer the risk for unlikely events to the private sector, the government would “probably end up paying a bigger price”.