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Osborne unveils fundamental reassessment of PFI in search of cheaper model

The government is undertake a fundamental reassessment of the private finance initiative (PFI) in a bid 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 Chancellor of the Exchequer has announced.

In a written ministerial statement, George Osborne insisted that the government was committed to continuing sustainable investment in the assets needed to deliver public services, including 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,” he said.

The Chancellor added that the government shared some of the commonly identified concerns that PFI contracts can be too costly, inflexible and opaque.

The Treasury said the aim of the review was 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.”

The Treasury, which will be launching a call for evidence on 1 December 2011, said it wanted 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”.