04 February 2005
Government grant for local authority Private Finance Initiative schemes will move to an annuity-based system, in an effort to level the playing field with other forms of capital finance.
The Office of the Deputy Prime Minister has approved the change so that, from April 2005, councils will receive a set level of grant for each year of their PFI contracts, instead of credits being provided on a 'declining balance' basis.
The aim is to match as closely as possible the set annual payments authorities make to contractors.
At the same time, the annuities will be subject to a 'scaling factor' that takes account of the overall budget for credits, in the same way as conventional borrowing credits.
As a result, councils will no longer receive a higher level of support if they apply for PFI credits rather than conventional borrowing credits.
This measure is designed to tackle the long-standing criticisms that the government's financial support is skewed in favour of PFI.
Announcing the changes, local government minister Nick Raynsford said they would ensure that authorities would in future choose PFI purely because it made financial sense.
'By eliminating bias in favour of PFI and bias against, it will ensure that decisions are taken as much as possible on value for money grounds, rather than the level of grant support,' he said.
Maureen Wellen, CIPFA's assistant director for local government finance, welcomed the reforms. 'The overall thrust of these changes has achieved wide acceptance within the local government community. We applaud the attempt to get a more level playing field.'
PFfeb2005
