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Osborne in pledge to axe PFI

Business leaders claimed this week that a Conservative government is unlikely to ditch the use of private finance for infrastructure despite pledges to scrap the Private Finance Initiative (PFI).

Last week shadow chancellor George Osborne said PFI would be axed, claiming contracts “lack transparency” and as a result are “totally discredited.”

But employers’ body the CBI said it believed that the party would shorten PFI contracts and make them more flexible and easier to renegotiate. But it said the Conservatives would still rely on models which use private finance.

The Conservatives have consistently said they will heed the views of business lobby group the CBI, which remains staunchly in favour of private finance.

CBI head of public services reform Elizabeth Fells this week that alternative vehicles that evolve the PFI concept would survive.

“PFI will always have a role as there are some sectors it is particularly suited to. But there are other models very similar to PFI.”

Elizabeth Fells, CBI

“There certainly will be a role for private finance. PFI will always have a role as there are some sectors it is particularly suited to. But there are other models very similar to PFI,” she said. Fells said the education and healthcare sectors already had two models in use that could provide a blueprint for new types of private sector investment.

Local Education Partnerships (LEPs) in education and the Local Improvement Finance Trust (LIFT) in healthcare are both characterised by flexible contracts and shorter contract lengths. Fells said the traditional 25 to 30 year contract length for privately financed projects was already falling out of favour.

“Newer contracts have seven year renegotiation and refinancing points. LEPs are generally 15 to 20 year contracts,” she said.

Flexible scheme

NCE understands that the giant £6.2bn M25 PFI is an example of a flexible scheme, with the scope for additional capital work to be financed in the future should client the Highways Agency decide it is needed.

Private finance remains a major source of infrastructure funding. PFI-funded project starts peaked in 2007 with £11.5bn of schemes going ahead.

The market froze in 2008 with just £3.4bn going ahead but figures to August show PFI closes this year are already up to £3.85bn.

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