Budget 2018: Government to abolish the use of Private Finance Initiative contracts

Philip Hammond has pledged to not sign any new PFI contracts after the collapse of the former industry giant Carillion at the start of the year escalated concerns about the government’s use of the PFI to build much of the UK’s hospitals, schools and roads.

Delivering his Budget, the chancellor also revealed a new centre of excellence would be opened to manage government PFI contracts, claiming there was little evidence to suggest that their use worked.

It comes after repeated calls from the opposition to abolish PFI contracts but Hammond told the House of Commons that 90% had been signed under Labour’s leadership and that today’s announcement “put another Labour legacy behind us”.

Speaking to MPs, Hammond said he had never signed a PFI contract as chancellor, and that the commitment meant he never would. The pledge comes 10 months after the demise of Carillion which had PFI contracts all over the country.

“Half of the UK's £600 billion infrastructure pipeline will be built and financed by the private sector,” the chancellor said. “And in financing public infrastructure I remain committed to the use of public-private partnership where it delivers value for the taxpayer and genuinely transfers risk to the private sector. But there is compelling evidence that the Private Finance Initiative does neither. We will honour existing contracts. But the days of the public sector being a pushover, must end. We will establish a centre of excellence to actively manage these contracts in the taxpayers' interest starting in the health sector.”

Colin Wilson, partner at international law firm DLA Piper, believes the lack of confidence expressed by the chancellor and Labour’s threats of nationalisation, are clear signs of a "lack of trust between the public and private sector". 

“The need for infrastructure investment in the UK has never been higher, especially in the transport and energy sectors, yet our need continues to exceed the capital budgets that are available," he added. "There are many partnering alternative models available for Government to adopt to facilitate this investment as opposed to the PFI model. It is important, however, that the public and private sector finds a way of forging effective partnerships, working together to structure these projects so as to ensure their successful delivery when they are brought to market."  

While Simon Rawlinson, head of Strategic Research and Insight at Arcadis, said: “The end to the use of the PFI for social and economic infrastructure is good politics as no deal has been signed since 2016. However, finding the finance to plug the gaps left by the EIB - which the budget does not address - along with public sector expertise to deliver publicly funded programmes, may prove to be longer-term liabilities." 

Earlier in the year, the National Audit Office, parliament’s spending watchdog, said in a report that the UK had been forced to fork out billions of pounds in extra costs for no clear benefit by using PFI to build much of its infrastructure.