Government drops PFI
Chancellor Philip Hammond used yesterday’s Budget to rule out further use of PFI and PF2 for future government contracts.
Hammond said: “In financing public infrastructure, I remain committed to the use of public-private partnership where it delivers value for the taxpayer and genuinely transfers risk to the private sector.
“But there is compelling evidence that the Private Finance Initiative does neither.
“We will honour existing contracts but the days of the public sector being a push-over must end. We will establish a centre of excellence to actively manage these contracts in the public interest, starting in the health sector. And we will go further. I have never signed off a PFI contract as chancellor and I can confirm today that I never will. The government will abolish the use of PFI and PF2 for future contracts.”
The value and number of PFI deals has been falling since 2007-08, with some suggesting that Hammond’s announcement was simply acknowledging reality (see graph below).
There was also speculation about what would follow PFI and PF2. Liz Jenkins, partner at Clyde & Co, said: "The current PFI/PF2 model has its critics both in and outside of the construction industry. The proposed abolition may come as a surprise but in reality it's likely that a new model will replace it."
"We await the details but one would expect a new model that continues to allow the private sector the opportunity to fund public infrastructure – we simply cannot build the infrastructure this country needs without it."
"If a new model can provide a clear pipeline of projects for construction companies and investors to plan against then this abolition will be welcome throughout the industry."
Other key budget points
Aside from the announcement on PFI, Hammond’s Budget contained a series of spending giveaways, including:
- The release of £420m for pothole repairs;
- An extra £500m for the Housing Infrastructure Fund, which the government said would enable another 650,000 homes to be built;
- £25.3bn for the second Road Investment Strategy for 2020-25;
- A reduction of the 10% contribution to the apprenticeship levy that smaller firms currently have to pay to 5%;
- £650m to rejuvenate high streets in England through the New Future High Streets Fund;
- £1bn of guarantee support via specialist and high street lenders through the British Business Bank to smaller housebuilders;
- £37m to support Northern Powerhouse Rail, dubbed the Crossrail of the North.