Hospitals facing cash crisis

New Government Approach to PFI

It has announced wide-ranging changes to the Private Finance Initiative (PFI), designed to cut red tape.

Central to the plans of Paymaster General Geoffrey Robinson is a new decision-making process. The Private Finance Panel, made up of members from the private sector, will be abolished and replaced by a Treasury task force.

Mr Robinson said this would speed up and cut the costs of the PFI, which had been criticised for creating huge tendering costs for both government and the private sector.

He said he was sure that the changes would "be welcomed as long overdue by companies and departments who have struggled for too long under previous management".

The Paymaster General announced that schools will be moved up the priority list to get finance through the scheme.

The PFI was launched by former Chancellor Norman Lamont in 1992 to involve private sector money in public sector projects. Then it was heralded as a way to help to finance new hospitals, schools and improvements to the transport infrastructure, but was plagued by delays.

On 1st June Health Minister Alan Milburn promised action on PFI red tape to help areas of the country that rely on NHS hospitals funded under the PFI, areas that were being hit by PFI delays.

The PFI has never been free from criticism. The idea was to encourage private sector investors to take on the financial risk of big projects for the public sector.

But it became dogged by problems, with the two most common complaints being that the bidding process was over-long and bureaucratic, and that it cost companies a lot to put together their bids.

Projects funded under the scheme include the Channel Tunnel rail link, the second Severn bridge, and new prisons in Wales and Liverpool.

Mr Robinson appointed Malcolm Bates, head of the Prudential insurance giant, to review the PFI only days after Labour's election victory. Mr Bates said, he believed "the private sector will welcome these proposals."