Magazine article Public Finance

Tories Call for Public Takeover of Stalled PFI Projects

Magazine article Public Finance

Tories Call for Public Takeover of Stalled PFI Projects

Article excerpt

The Conservatives have called on the government to use public funds to rescue Private Finance Initiative projects that have ground to a halt because of the credit crunch.

But shadow chief Treasury secretary Philip Hammond told Public Finance it would be 'ridiculous for the government to lend money to PFI contractors'.

He argued instead to 'restructure contracts as publicly financed procurement, with the risk transferred [to the private sector] by other means', such as using fixed-price 'design and build' contracts.

The government has come under increasing pressure to bail out major projects, with industry figures calling on the government to step in with funding. Tim Pearson, director of private equity firm Innisfree and a spokesman for the PPP Forum, suggested £4bn should be pumped into PFI schemes over the next 18 months.

Experts have also warned that if the government fails to act quickly, the PFI could be seriously undermined, possibly for the long term.

Prime Minister Gordon Brown was forced to promise rescue measures at a February 13 meeting of the Commons Liaison Committee, made up of select committee chairs.

A Treasury spokesman confirmed that proposals would be produced in the next two weeks. Speculation is growing that the government might set up an infrastructure fund to lend money to PFI schemes or underwrite bank loans to encourage more and cheaper lending.

But Hammond said: 'If the private sector can't provide finance, we have to look at ways to take the financing role back into the public sector.' The government should go back to the drawing board' rather than 'pretend it's a PFI project and having the government providing the finance and taking on the financing risk'.

The government should deliver existing capital commitments through public sector finance rather than the PFI', he said. That would create aproblem for the government, which had used the PFI to keep borrowing for infrastructure projects off the balance sheet, he said. But a Conservative government would put such projects on the balance sheet however they were funded, he said. 'The imperative to keep things in the PFI is gone.'

The PFI was not dead, and could offer value for money in future, Hammond insisted. But he added: 'These are very unusual times. We've got to be pragmatic. …

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