Private cash drive throttles public projects

Vital road and hospital works are being held up by Treasury instransige nce. Catherine Pepinster reports

THE Government's insistence on using private finance in public sector projects is bringing vital improvements to roads and hospitals to a standstill.

Companies queueing up to work with Government departments under the terms of the Private Finance Initiative say that Treasury insistence on the need to test public-sector projects for private-sector partnership possibilities is causing a stranglehold on new ventures. Civil servants have been blamed for delaying projects, because of confusion as to how to assess them.

Among road projects which have been delayed by these "tests" are the construction of the M1/A1 link in Yorkshire, the A1 Alconbury to Peterborough upgrade in Cambridgeshire and the M40 lane widening. Hospitals have also been badly hit. Among new facilities held up are the pounds 33m phase two of Barnet Hospital's redevelopment, a pounds 28m redevelopment of Ninewells Hospital in Dundee, and a pounds 40m redevelopment of Walsgrave Hospital in Coventry.

One building industry organisation, the National Council of Building Materials Producers, has warned that the delays were so bad that "the country's infrastructure seems destined for a future of decay".

Earlier this year the Government ordered that no publicsector projects would receive any taxpayers' money until the possibility of paying for them privately had been tested under the Private Finance Initiative, a venture first proposed by Norman Lamont when he was Chancellor in 1992. One of the biggest planned projects to date which will be considered for the PFI is the pounds 200m refurbishment of the Treasury building in Whitehall.

The PFI was devised as a way of cutting costs by encouraging business to provide services rather than assets. Instead of handing over just a hospital building, for instance, to a health authority, under the PFI a contractor provides a complete service of hospital building with beds and equipment for several years. Payments for the construction costs would be linked to bed occupancy. Ministers, believing the PFI would stop delays and overspends on projects, endorsed it with enthusiasm.

However, the initiative has created huge swathes of red tape, with building projects being delayed by as much as 50 weeks. Complaints about the procedures came to a head when Sir Alastair Morton, chairman of the Treasury's deal- broking team, the Private Finance Panel, met John Major last month to discuss the log-jam. The result is that thousands of civil servants will have to attend special PFI induction courses, from September.

Sir Alastair, who charted the troubled Channel Tunnel project to completion, has warned that the PFI process is "laborious". "The current problem is how to speed up the process,'' he said.

He blames the hold-ups on the decision by Government departments to bring in City advisers to work with civil servants on applications. Sir Alastair believes they have slowed down processing and are adding to the cost of what was supposed to be a cheaper method of procurement. Construction minister Robert Jones, who is also concerned about the slowness of the PFI, has asked his senior civil servants to prepare a report outlining ways of speeding up work.

According to the Private Finance Panel, hundreds of companies are coming forward, wanting to take part in PFI ventures. But so far few projects have actually been approved. Figures obtained by Labour MP Clive Betts show that the Ministry of Agriculture, the Cabinet Office and Foreign Office failed to approve any schemes in 1994/5 and are unlikely to do so in 1995/96. The Department of Employment did not approve any schemes in 1994/95, nor did the Home Office.

The Home Office expects to approve pounds 150m worth of schemes in 1995/6, and prisons are expected to make up the bulk of projects. The Department of National Heritage did not approve any PFI ventures in the last financial year and has no figures for 1995/96.

At the Department of Social Security, one major project, the pounds 150m replacement of the National Insurance Recording System, has been given the go-ahead. So far the most successful departments in PFI have been the Scottish Office, with pounds 100m worth of schemes approved and the Department of Transport. It has backed the public/private sector pounds 400m Northern Line train project and will approve pounds 3.51bn worth of projects this year, including the Channel Tunnel rail link.

Irum Malik, an economist with the National Council of Building Materials Producers, said: "This initiative is clogged with bureaucracy, which is causing huge uncertainty about vital services such as roads. There has been interest among businesses wanting to work with the Government, but these delays are causing problems for not only the private sector but the country as a whole. Our infrastructure is decaying."