Private Finance Initiative

Tuesday 15th November 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

Today, I am announcing the Government’s intention to reform the private finance initiative (PFI).

The Government are committed to continuing sustainable investment in the assets we need to deliver public services, including our schools, hospitals and roads. However, we need to ensure that this investment is cost-effective, and that the taxpayer is getting maximum value for money. The Government share some of the commonly identified concerns that PFI contracts can be too costly, inflexible and opaque.

Reforming the PFI model will be the next in a series of steps that this Government have already taken to improve the cost-effectiveness and transparency of PFI.

We abolished PFI credits at the spending review 2010 to create a level playing field for all forms of public procurement. We also introduced new assurance and approval arrangements in April this year, to strengthen the scrutiny given in the approval process of all projects, including those using private finance.

In July, to improve transparency, the Government published, for the first time, the unaudited Whole of Government accounts which included an assessment of the PFI liabilities, and we announced a plan to deliver £1.5 billion of savings from the existing stock of PFI contracts in England.

The Government will expect a new delivery model to draw on private sector innovation but at a lower cost to the taxpayer, offering better value for our investment in public services. The Government’s approach to reform will be guided by the following principles, to create a model that:

is less expensive, and that uses private sector innovation to deliver services more cost-effectively;

can access a wider range of financing sources, including encouraging a stronger role to be played by pension fund investment;

strikes a better balance between risk and reward to the private sector;

has greater flexibility to accommodate changing public service needs over time;

maintains the incentive on the private sector to deliver capital projects to time and to budget and to take performance risk on the delivery of services;

delivers an accelerated and cheaper procurement process; and

gives greater financial transparency at all levels of the project so that the public sector is confident that it is getting what it paid for, and that the taxpayer is sure it is getting a fair deal now and over the longer term.

In order to bring about that change I am announcing the Government’s intention to conduct a broad-based engagement process with interested parties, led by the Treasury, to bring forward proposals for a new approach in using the private sector in the delivery of public assets. In considering what the future model should be it will be important to learn from the past and make full use of the wealth of experience that exists across the public and private sectors, and internationally. Where PFI has been successful—in getting projects delivered to time and to budget, and creating the correct disciplines and incentives on the private sector to effectively manage risk—we will look to retain these benefits.

The Government will be launching a call for evidence on 1 December that aims to capture the learning and lessons of the past 20 years of PFI. We will look to use those lessons to help inform the development of a new model that addresses the concerns of PFI. We invite those across the private and public sector that have strong ideas on how the future model should work to come forward with proposals and contribute to the development of a new delivery model.