Private Finance Initiative (Hansard, 21 May 1996)

§ Mr. Curry

Since launching the local government private finance initiative in October 1994, we have encouraged links with the private sector by making important changes to the capital finance rules. These have been welcomed by authorities, but we promised to go even further.

I am today announcing radical measures to help local authorities harness private-sector finance and management expertise. In many cases these will remove genuine private finance projects from local authority 165W capital spending limits and provide revenue support for such projects. My aim is to encourage the provision of privately-financed and serviced facilities such as schools, leisure centres, transport schemes and police stations. I hope local authorities will take maximum advantage of these new opportunities.

Provided that schemes meet certain risk transfer tests in the regulations, and subject to the usual requirement for value-for-money appraisal, local authorities will in future be able to provide their services using facilities delivered under private-sector contracts, without any cost whatsoever to their capital resources.

The new regulations will define the circumstances in which such contracts need make no charge on authorities' capital resources. In summary eligible contracts will be those where: the contractor is providing a service to a defined standard, responsibility for designing, building, financing, and operating any physical assets rests with the contractor, the authority's payments are directly related to performance or usage, or both, and vary according to the availability and quality of the service. If the service falls significantly below expectations the level of payments should be no more than 70 per cent. of that anticipated. This will mean the acceptance of real risk by the private sector.

We envisage that these regulations will cover the bulk of worthwhile PFI cases, and will give a clear target for authorities and prospective contractors to aim at. However, where the project is not strictly eligible under the regulations but nevertheless involves significant risk for the private-sector partner, we will allow authorities a second chance to protect their capital resources. Government Departments will be able to issue additional supplementary credit approvals on a case by case basis for PFI schemes meeting more flexible criteria than those in the regulations.

We recognise that these measures, while eliminating the capital impact of qualifying projects, could leave pressures on the revenue account. To combat this, we will

Housebuilding completions: West Midlands region
	Private enterprise	Housing association	Local authority	Total
	Numbers of dwellings	Change from previous year (per cent.)	Numbers of dwellings	Change from previous year (per cent.)	Numbers of dwellings	Change from previous year (per cent.)	Numbers of dwellings	Change from previous years (per cent.)
1990	13,200	+3.9	2,100	+70.9	1,100	+4.3	16,400	+9.5
1991	13,600	+3.1	1,531	+27.7	1,100	-13.2	16,100	-2.0
1992	12,200	-9.9	2,300	+53.2	400	-60.9	15,000	-6.6
1993	13,200	+7.5	2,900	+23.8	200	-49.3	16,300	+8.3
1994	12,700	-3.4	3,100	+5.4	200	-4.1	16,000	-1.9
1995	12,500	-1.9	2,700	-13.2	100	-43.0	15,200	-4.6
Figures individually rounded, so the total may not be the exact sum of the component series. Percentage changes calculated on the unrounded figures.

These figures are based on reports to the Department by local authorities and the National House Building Council, and include estimates for those local authorities that have not provided statistical returns for their districts.

While these figures cover newly built accommodation, housing associations also provide additional social lettings by the rehabilitation of existing properties and through the various home ownership incentive schemes. Local authorities also provide a significant number of additional 166W ensure that authorities undertaking projects will be eligible for revenue support. This will be arranged by adapting the existing system of standard spending assessments and revenue support grant.

My Department will be consulting local authority associations and other interested bodies on these proposal. It is hoped to publish draft capital finance regulations for consultation within a few weeks, and to lay them before the House in time for them to come into effect in the autumn.