PFI overhaul gets business backing

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The Government's overhaul of the Private Finance Initiative, which will see a new pounds 150,000-a-year chief executive drafted into the Treasury to run the programme, received strong backing across business yesterday.

The sweeping reforms will result in the Private Finance Panel and its 25-strong executive being disbanded and replaced by a nine-strong Treasury taskforce recruited from the private sector and reporting directly to the Paymaster General, Geoffrey Robinson.

The taskforce, to be headed by a chief executive with project experience, will be responsible for approving all Whitehall PFI schemes before they are let to private operators and will run for two years.

Other changes include limiting the number of bidders on each project to four and paying the private sector's bid costs where PFI projects are withdrawn by the Government. There will also be a greater role for the private finance units within government departments.

As details of the review emerged, legislation which will pave the way for the launch of PFI schemes in education including the building of entire schools, received its second reading in the Commons.

The Local Government Contracts Bill is expected to enter force in November and will give local authorities the right to enter into PFI projects with private backers to build schools, fire stations, libraries and local roads.

Similar legislation is being introduced in the health sector after fears among private financiers about whether NHS hospital trusts had the legal authority to enter into PFI contracts.

Mr Robinson said that health and education would be the Government's two priority areas. It is aiming to finance pounds 14bn worth of public sector capital projects through the PFI by the end of the next financial year.

The reforms stem from a one-month review conducted by Malcolm Bates, a former deputy managing director of GEC and now chairman of Pearl Assurance and Premier Farnell.

Mr Bates said he was confident that the private sector would welcome the changes, which are designed to speed up the flow of PFI deals. So far more than 60 projects valued at pounds 6.9bn have been financed under the PFI but the Channel Tunnel Rail Link accounts for nearly half this total.

The Confederation of British Industry welcomed the overhaul. Charles Cox, the chairman of its PFI committee, said: "Today's announcement is what business wanted to hear. The focus on immediate action is partciularly welcome."