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£2bn fund to bail-out PFI

The Treasury has announced a £2bn package to rescue stalled PFI deals by setting up a special unit to administer funds to bring those deals to financial close.

Opposition MPs say the move signals the death of PFI.

The Treasury will provide debt via a unit, not a stand-alone bank, which will lend at market rates.

The debt will then be sold on to third parties once the market recovers.

A Treasury spokesperson said: “A Treasury unit will run alongside the policy unit, which can co-lend on projects that cannot reach financial close. We have to be sure that these projects are unable to close,” he said.

The cash would not be used to finance all 110 projects, valued at £13bn, the Treasury said were yet to reach financial close, but: “To co-lend, and when the market has moved on, to sell the debt on so we get it back.”

The move will now unlock billions of pounds of investment that had been held-up as deals struggled to reach ‘financial close’, and allow work to begin.

Chief executive of the Association for Consulting and Engineering (ACE), Nelson Ogunshakin said it was good news:

“If these reports are true then we welcome what would be an excellent and well-crafted move which should help to increase momentum in the consultancy and engineering sector and wider construction industry by bringing forward a number of much- needed infrastructure projects.”

“We also urge the government to take all the necessary steps to ensure that the lending process is effective and that priority is given to projects already planned so that the industry can get to work on them as soon as possible.”

The lending could plug funding gaps in PFI deals for projects such as the £5bn M25 PFI, £3bn Manchester waste PFI, Building Schools for the Future programme, hospital programme and £12bn Defence Training Review.

However, Liberal Democrat shadow chancellor Vince Cable, who anticipated the announcement, said it signalled the death of PFI.

“It is now very clear that PFI has largely collapsed as a mechanism for funding infrastructure.

“This was a dishonest system of accounting, designed to hide taxpayers’ liabilities. If the private sector cannot now come up with the money, and is unwilling to take the risks, we need to move to a simpler, more honest system of public investment for public projects.

“In a time of deep recession, it is more necessary than ever to maintain priority public sector investment in social housing, schools, colleges and public transport.

“But rather than trying to give the kiss of life to PFI, the Government should simply accept that these are core public investment commitments.

“The worst thing that could happen is a repeat of scandals like Metronet, where the Government ends up taking all of the risks while trying to maintain the fiction that the private sector is involved and is contributing,” he said.

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