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Government plans to reform PFI model

Government plans to reform PFI model

News Release issued by the COI News Distribution Service on 15 November 2011

The Government will review the private finance initiative (PFI) and consider other delivery models, the Chancellor announced today. The objective of the review, led by the Treasury, is to create a new model for delivering public assets and services that takes advantage of private sector expertise, but at a lower cost to the taxpayer.

The Government’s approach to reform the PFI model will look to create a model which is cheaper, accesses a wider range of private sector financing sources and strikes a better balance of risk between the private and the public sectors. The review will create a model which:

• 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.

The Treasury will be launching a call for evidence on 1 December 2011 that will make full use of the wealth of experience across the public and private sectors and learn the lessons of the past twenty years of PFI. The Treasury will also be looking to retain the benefits of the PFI model, including getting projects delivered to time and to budget, and giving the private sector the right incentives to effectively manage risk.

The Chancellor, George Osborne, 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.
”But the review I have announced today will take this a step further with a fundamental reassessment of PFI. We want 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.”

Notes for Editors

1. The Written Ministerial Statement announcing this reform can be found here:
2. This Government has consistently expressed concerns about the misuse of PFI and has already announced a number of significant steps in order to improve the cost effectiveness and transparency of PFI, including:
• abolishing PFI credits at the Spending Review 2010 to create a level playing field for all forms of public procurement;
• introducing new assurance and approval arrangements in April 2011 to strengthen the approval process of all projects;
• in July 2011, including PFI liabilities in the unaudited Whole of Government Accounts to improve transparency; and
• announcing a plan to deliver £1.5 billion of savings from the existing stock of PFI contracts in England.

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