07 November 2008
By Tash Shifrin
Business leaders have warned that new Treasury guidance could deter private contractors from getting involved in Private Finance Initiative schemes.
The guidance, issued last month, is aimed at ensuring public authorities get a larger share of the gains when PFI deals are refinanced. This follows criticism of the windfalls that private firms have secured after refinancing deals in the past.
Refinancing is expected to increase after a three-fold rise in the credit margin charged by banks financing PFI schemes over the past year, as those involved seek more advantageous terms in future.
The guidance introduces a right for public authorities to request refinancing. It stipulates that the public body must receive 50% of any gains up to £1m, 60% for the next £2m and 70% thereafter.
Mark Fox, chief executive of the Business Services Association — whose members include contractors Amey, Interserve and Rentokil Initial — said: 'These new rules substantially reduce the attractiveness of being involved with PFI deals and they come at a time of serious economic challenge and testing of confidence.'
He told Public Finance that taking a smaller share of refinancing profits would hit contractors. 'Most businesses that provide these services are quite marginal businesses. They rely on efficiency... It's a tough environment,' he said. The government 'must not be complacent' about ensuring that the PFI remained attractive to outsourcing firms, as the UK public sector was competing with international and private sector demand.
Adrian McMenamin, head of campaigns at the CBI, said: 'The Treasury needs to proceed with extreme caution at a time of financial difficulty. It needs to be aware of the concerns of contractors. This could look like a shift of the goalposts.'