The Treasury said it would step in to lend the money to PFI contractors struggling to raise finance due to the credit crunch, with the money either diverted by Whitehall departments from elsewhere or funded by extra government borrowing.
Treasury chief secretary, Yvette Cooper, said the move would safeguard £13bn of public investment, £6.6bn in capital spending on transport and waste, and avoid the ‘significant delay’ entailed in projects having to switch procurement approaches.
All 110 PFI schemes in procurement but yet to reach financial close will be safeguarded by the new Treasury unit, including the £5bn M25 upgrade, the £4.4bn Greater Manchester waste PFI, and the £2.7bn Birmingham highways maintenance PFI. These contracts are worth more than the figures on capital investment the Treasury used this week.
As recently as October, local government’s project delivery specialist, 4Ps, had claimed that the crisis in the financial markets would only delay PFI deals, rather than preventing them from reaching financial close (Surveyor, 23 October 2008).
The Treasury expects to provide ‘considerably less than 100% of the debt requirements’ of the projects, and hopes commercial banks will ‘continue to provide financing’.
Despite the intervention, Cooper stressed that the Treasury remained committed to using PFI to procure infrastructure. She claimed ‘investors are still willing to put money in and bear the risk of delays or cost overruns, rather than the taxpayer’.
The Liberal Democrats last year attacked PFI for ‘not offering best value to the taxpayer, while the SNP-led Scottish Government has attacked ‘the very high gains’ made by PFI contractors.
Welcoming the move, Andrew Crudgington, head of policy for the Institution of Civil Engineers, said the Government had acted to address damaging uncertainty around the future of major projects vital for the economic and environmental wellbeing of the UK. ‘Longer term, however, the Government will need to develop new thinking on the funding of major infrastructure, to head off future uncertainty.’
Chris Wilson, executive director of 4Ps, said: ‘Despite the current difficulties, PFI has many advantages for the public sector. It is a mature market with well-developed competition, and has a track record of delivery on time and budget.
‘The Government’s investment will enable projects to move forward and bring a measure of confidence to the PFI market.’
