Treasury signals end for "build now, pay later" schemes

LONDON Tue Nov 15, 2011 2:35pm GMT

Workers are silhouetted on a construction site in London April 17, 2008. REUTERS/Luke MacGregor

Workers are silhouetted on a construction site in London April 17, 2008.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - Britain has signalled it plans to move away from a controversial funding method that has helped to pay for the building of roads, prisons and schools over the past two decades.

Announcing a review of the Private Finance Initiative (PFI), the Treasury said it wanted groups like pension funds to play a greater role in supporting state investment.

"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," Chancellor George Osborne said in a statement on Tuesday.

"But the review I have announced today will take this a step further with a fundamental reassessment of PFI. 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," he added.

The Sunday Times reported at the weekend that Osborne, seeking to boost flagging growth, was drawing up plans for a 50 billion pound housing and road-building programme harnessing private sector money held by pension funds and insurance companies.

Introduced by Conservative Chancellor Norman Lamont in 1992, the scheme encouraged private companies to pay for expensive state construction projects, with the government paying off the bill over many years like a mortgage.

Higher borrowing costs since the credit crisis had made PFI an "extremely inefficient" method of financing, a report from Parliament's Treasury Select Committee said in August.

National debt would rise by 35 billion pounds, or 2.5 percent of GDP, if all PFI liabilities were included in national accounts, it added.

The PFI scheme expanded under the previous Labour government and modernised and rebuilt many schools and hospitals.

The Treasury will be seeking evidence from December 1 for a review that will devise an alternative scheme that is more cost effective and transparent, it said.

(Reporting by Keith Weir; editing by Ron Askew)

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