Billions to flow from PFI reform
Treasury hopes new private finance initiative will see pension funds act like banks
The Treasury is preparing to overhaul the hugely controversial private finance initiative, which could see billions of pounds dropped into public sector coffers and pension funds act like banks.
PFI was used by the Labour government to rebuild Britain's schools, hospitals and roads, but was attacked by its many critics as privatisation by stealth. Infrastructure UK, the Treasury body, is currently poring through 150 responses to a consultation that would see what is colloquially known as "PFI mark II" introduced.
But, it is understood that its chief executive, former Alistair Darling adviser Geoffrey Spence, has settled on at least two major changes. These are expected to be sketched out at a conference of public and private sector parties, such as NHS trusts and construction companies, in September.
The Government wants pension funds to finance a large chunk of a £200bn infrastructure programme that ministers hope will kick-start the economy.
However, pension funds have historically been unwilling to put equity into the construction phase of such projects, as it is deemed risky with a very high chance of litigation between client and builder.
Infrastructure UK would look to stimulate this early investment in the next PFI round by allowing pension funds to inject debt as well as equity into the projects. PFI schemes were often 90:10 debt-to-equity, with the banks getting their money back first when the public sector repaid the cost of building and running the property over a 25 to 35-year contract.
By putting up debt, pension funds would see most of their money almost guaranteed to be repaid, making the investment less of a risk. The equity owner can be penalised if the asset misses certain targets, as rudimentary as receptionists failing to answer the phone quickly enough.
An industry source said: "The problem for pension funds has been that the first pound is always repaid, but the last pound – the equity – is the least likely to be repaid. A debt position is a better position to have."
A major criticism of the PFI has been that the public sector has not shared in any of the profit made when the private sector equity holder, often a builder or support services group initially, sell on their stake. The public sector could now take about 50 per cent of the profit from these sales, which in PFIs currently under negotiation alone could be worth £1.5bn to £2bn.
- 1 The West has it totally wrong on Lee Kuan Yew
- 2 Watch: Man takes selfie every mile of 2,600 mile hike, creates amazing timelapse video
- 3 The day I starred in Only Fools and Horses
- 4 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 5 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
Germanwings captain Patrick Sondenheimer tried to break into locked cockpit door 'with an axe' as plane was descending
Saudi Arabia says it won't rule out building nuclear weapons
The battle for the Middle East's future begins in Yemen as Saudi Arabia jumps into the abyss
Jeremy Clarkson 'could be given minder' ahead of a potential Top Gear return
#FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Revealed: Putin's army of pro-Kremlin bloggers
Germanwings plane crash: Co-pilot Andreas Lubitz wanted to 'do something people would remember him for'
Andreas Lubitz: Knee-jerk reaction to 9/11 enabled mass murder
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...