Osborne launches "fundamental reassessment" of PFI

The Treasury is to lead a "fundamental reassessment" of the Private Finance Initiative (PFI) in order to develop a new model for delivering public assets such as schools and hospitals, Chancellor George Osborne has announced.

The study will attempt to create a system that takes advantage of private sector expertise while reducing costs for the taxpayer.

Osborne said that the new model will access a wider range of sources of finance, including pension fund investment, while striking a "better balance" of risk and reward for businesses.

It will also deliver greater transparency "at all levels" so the public sector can be confident that it is getting what it paid for, while taxpayers can see they are getting a fair deal in both the short and long term.

"We have consistently voiced concerns about the misuse of PFI in the past and we have already taken steps to reduce costs and improve transparency - but this review I have announced today will take this a step further with a fundamental reassessment of PFI," the Chancellor said.

"We want a new delivery model which draws on private sector innovation but at a lower cost to the taxpayer and with better value for public services."

In August, the cross-party Treasury select committee strongly criticised PFI, saying it does not provide taxpayers with value for money and finding no convincing evidence that savings and efficiencies achieved during the lifetime of the projects offset the significantly higher cost of finance.

Yet despite higher borrowing costs making the initiative an "extremely inefficient" method of delivering projects, the committee found that "poor investment decisions" were being encouraged across the public sector because PFI allows Government departments and other bodies to make substantial capital investments without committing large sums up front.