Budget 2018: Philip Hammond announces the end of PFI

Chancellor says that the funding mechanism does not provide value for money but confirms half of government infrastructure plan will be privately funded

Photo: PA

By Richard Johnstone

29 Oct 2018

The government is to end the use of the Private Finance Initiative and its successor PF2 schemes after Philip Hammond told MPs that the deals no longer represent value for money.

In his Budget statement, Hammond said he had never signed off the use of a PFI contract, or its successor PF2, and would now end the use of the financing method.

“I can announce that the government will abolish the use of PFI and PF2 for future projects," he said.


It was also announced that the government would create a new centre of excellence to manage the 700 existing PFI contracts across the public sector.

However, the chancellor said that the private sector was set to fund half of the UK’s infrastructure pipeline.

The announcement comes after the Treasury rejected a call from the Public Accounts Committee to calculate the returns investors have made from Private Finance Initiative projects, saying that the cost of the exercise would be too high.

In a report examining the use of the PFI, and its successor PF2 introduced in 2012, MPs said it was “unacceptable” that the Treasury has no data on the benefits of PFI, despite more than 25 years of the funding method being used to build schools and hospitals around the country.

After examining the use of the finance model, where central and local government use private contractors to build and maintain public infrastructure and then pay an annual fee to use it, MPs recommended that the Treasury should calculate the returns to originating PFI equity investors when they sell on their stake.

The report also highlighted that one government official was collating the data on benefits of PFI schemes.

However, the Treasury rejected the recommendation to calculate the returns made by private investors. In its response to the PAC earlier this month, it highlighted that reforms introduced with PF2 aimed to provide greater transparency about the returns that investors in the schemes will make. Investors in previous PFI schemes are not required to make such disclosures.

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