HISTORIC PRESS RELEASE : PFI – Meeting the Investment Challenge [July 2003]

The press release issued by HM Treasury on 15 July 2003.

The Treasury today published “PFI: Meeting the Investment Challenge” on the evolving role of PFI in delivering cost effective investment in public services.

The document sets out the Government’s approach to PFI, provides detailed analysis of the performance of the PFI programme to date and outlines a number of proposals that, as PFI evolves, will ensure the public sector effectively captures the value for money benefits that PFI can deliver, including:

• reforms to improve the assessment of value for money appraisal by the public sector, to continue to ensure there is no bias in favour of any one procurement option and the decisions are made on the basis of best value for money. These include reforms to the Public Sector Comparator to ensure consistency with the reforms made at last year’s revision of the ‘Green Book’ (the Treasury’s guidance to departments on project appraisal). These changes mean that a value for money assessment of both PFI and conventional procurement options are fully taken into account prior to the procurement of a project, and that there is greater clarity on transferring soft services staff to ensure that application of value for money does not come at the expense of employee terms and conditions;
• measures to improve the efficiency of the procurement process, including more rigorous enforcement of standardisation, the accreditation of advisors, new models of procurement and greater transparency;
• proposals to revise the scope of PFI and focus its use on where it works best  – exploring new applications for PFI where existing evidence suggests it could deliver benefits – as foreshadowed in the Chancellor’s Social Market Foundation speech earlier this year – in social housing, urban regeneration and waste, but using conventional procurement methods in areas such as IT and small value projects where experience suggests that, conventional methods are  the best approach for driving more efficient procurement.
• investigating the potential for new methods of financing projects, for example, through “framework funding” for small PFI schemes bundled together and by piloting the potential for using credit guarantees as an additional means of funding PFI projects.

Paul Boateng, Chief Secretary to the Treasury said:

“The Government’s objective is deliver world class public services.  To achieve this, sustained increased in investment and matching reforms are needed to deliver efficient and responsive public services.  PFI has an important role to play in delivering this investment.

“The benefits of good procurement are not confined to those sectors where PFI is already well-established, and new applications for PFI will be explored where existing evidence suggests it could deliver benefits – in social housing, urban regeneration and waste.”

Total investment will rise to more than £47 billion by 2005/6. PFI has accounted for between 10 and 14 per cent of total annual investment in public services since 1997. This year investment through PFI is expected to be around £4.6 billion.  Almost 60 per cent of PFI projects are on-balance sheet, i.e. classified to the public sector.

The document sets out details of research conducted by the Government, which confirms a largely positive impact of PFI to date, with 89 per cent of projects delivered on time or early and with the costs of signed deals only changing where the public sector’s requirements changed.

To date, the Government has closed 563 PFI deals with a total value of over £35 billion. Recent years have seen the steady growth of the market in PFI with projects in a wide range of sectors such as health, education, defence and housing, including 34 hospitals and 239 new or refurbished schools that are already up and running.