By Richard Johnstone | 12 July 2013
Local government is hesitant to develop projects using the government’s PF2 funding initiative due to the ‘limited’ number of schemes that can be taken forward, the chief executive of Local Partnerships has said.
Speaking at the CIPFA conference, Judith Armitt said there was only a small programme of school building projects currently being taken forward using PF2, which is the government’s flagship replacement for the Private Finance Initiative.
Under the scheme, the public sector will become a shareholder in the special purpose vehicles that build, fund and operate schools, hospitals and other public infrastructure. This is intended to address criticisms that only private sector firms profited from original PFI deals.
However, there is a ‘very tentative feeling’ among councils about the model, Armitt indicated.
Local Partnerships, which is jointly owned by the Treasury and the Local Government Association to provide commercial and legal expertise to town halls, would ‘love to run a pilot project’ to help develop possible uses, she said. However, there’s ‘quite a lot of hesitation’.
Armitt added: ‘My understanding is that there’s very limited amount of things that can be done in PF2 at the moment, the new PFI. There’s a small programme of schools but there’s a very tentative feeling about whether PF2 is really going to take hold.’
Her comments came as the government set out the next steps in the development of the PF2 model.
Under the proposals, funds for the state’s investment in each scheme will be provided by the procuring authority – a Whitehall department or council – but will be managed by a new unit within the Treasury. The Treasury published details of the shareholder agreement that bodies involved in the scheme would sign for consultation on Wednesday.
The in-house PF2 unit will undertake due diligence on each potential investment, before making an investment in each company. An annual report on the public sector’s investments, including the actual and forecast investment returns, will also be published.
It is expected the first scheme to be taken forward under PF2 will be the Department for Education’s Priority Schools Building Programme. Forty-six schools in five batches will be rebuilt using PF2, with a total funding requirement of approximately £700m. Procurement for the first batch of schools was launched by the Education Funding Authority in June 2013, and the remaining batches will follow over the next 12 months.
Launching the consultation on the investment terms, commercial secretary to the Treasury Lord Deighton insisted the government was ‘getting on with delivering a new improved approach to the way we manage infrastructure projects’. He added: ‘Taking a share of equity in these projects means a greater voice for the public sector, stronger partnerships with the private sector and increased disclosure to the taxpayer. It will also make us better clients. This is an important step forward and we must continue this momentum.’
