Budget expansion plan for PFI

Treasury minister responds to industry's complaints, Peter Rodgers reports

The Chancellor is likely to announce a big expansion of the Private Finance Initiative in this month's Budget, including a drive to encourage local authorities to participate which could substantially boost the current pounds 5bn of projects in the pipeline or agreed.

Among new measures being considered by the Treasury to boost the PFI is a set of changes in the rules governing local authority capital investment which could bring new work to manufacturing and construction industry.

Michael Jack, the financial secretary to the Treasury, made clear yesterday that every department has been under strong pressure during the pre-Budget public spending round to come up with proposals for introducing private finance.

Under the PFI, private sector companies fund investments that would otherwise be financed by the taxpayer.

"If they [departments] want to be associated with things that are going to happen, private finance is the preferred route" Mr Jack said.

The proposals to make PFI finance more accessible to local authorities were drawn up by the Department of the Environment. Mr Jack, while refusing to give details, dropped a strong hint that the Treasury looked on them favourably. He described them as "very interesting ideas."

The PFI has been widely criticised in industry, particularly among construction companies, because of its slowness to get off the ground, amidst allegations that schemes have been bogged down in a mound of bureaucratic paper. Construction companies claim the PFI has been used as a cover for cuts in public works contracts. Mr Jack said the Treasury acknowledged the criticisms about how PFI projects were negotiated and wanted to hear industry's complaints and do something about them. "We are learning all the time," he said.

He has held bilateral meetings with spending ministries to identify potential logjams in Whitehall, and the Treasury has launched a big staff training programme. The aim is to bridge what is seen as a cultural divide between civil servants and the businesses with which they negotiate."It takes time for a partnership to form," Mr Jack said.

A new Treasury assessment to be published in the next few weeks will show that the pounds 500m of PFI projects committed at the end of March has grown to pounds 1.3bn, including the pounds 140m contracts for two privately funded prisons that are about to be announced by the Home Office.

Officials said a further pounds 400m of roadbuilding projects are also near signature, which will take the total to pounds 1.7bn.

In the last Budget the Chancellor set a target of pounds 5bn of PFI projects by the end of the current financial year, including pounds 2.3bn for the proposed Channel Tunnel rail link. Mr Jack said he was confident that the link would be agreed during the financial year. That would bring the total to pounds 4bn - leaving only pounds 1bn to go to meet the Chancellor's target.

It is thought that the Treasury is looking for a further pounds 5bn of PFI projects by the end of the 1995/6 financial year. With the rail link regarded as very much a one-off, that represents almost a doubling of the flow of smaller PFI projects. But Mr Jack expressed confidence in Whitehall's ability to come up with new and viable plans, despite industry's misgivings about the pace of the programme.

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