Savings from PFI review ‘could double’, says Local Partnerships chief

27 Feb 14
The coalition’s programme to cut the cost of operational Private Finance Initiative schemes should eventually save more than double its initial £1.5bn target, the chief executive of the Local Partnerships government agency has said.

By Richard Johnstone | 28 February 2014

The coalition’s programme to cut the cost of operational Private Finance Initiative schemes should eventually save more than double its initial £1.5bn target, the chief executive of the Local Partnerships government agency has said.

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Judith Armitt told Public Finance the extension of the savings scheme to local authorities would also help town halls dealing with the impact of funding cuts.

Ministers announced on January 20 that the review of PFI contracts – intended to cut the cost of the long-term deals for private sector providers to build, finance and operate public infrastructure such as schools and hospitals – would be extended. After examining the scheme so far, the National Audit Office said that £1.6bn of savings had already been identified, of which there was 'sufficient evidence' at least £1.2bn would be realised.

Armitt told PF that Local Partnerships – which is jointly owned by the Treasury and the Local Government Association – was putting together a rolling programme to recover costs from local government PFIs in 2014/15,

She urged authorities to come forward to join the savings drive, highlighting that local government projects outnumber Whitehall PFI deals by around four to one.

It was likely that the government’s initial target to save £1.5bn from the cost of PFI deals could increase to £3bn, translating to lower operating payments for councils as they seek to reduce their spending in the face of funding cuts.

‘I think it’s clear already that there can be at least double the savings,’ Armitt said.

‘There’s still a very substantial number of PFI contracts out there that haven’t been reviewed. I think this is one of the areas where local authorities really have the opportunity to make significant savings – it’s a real contribution to their budgetary difficulties.’

There are three elements of PFI contracts that Local Partnerships can review, she said.

‘We do a contract management review, so that the complexities of the contract and how to get the best out of the contract are clear; we do work to help make optimum use of a PFI asset; and we do work to make savings. The savings come at all sorts of levels, but we can help renegotiate terms.

‘On average we’re saving between 5% and 10% of the annual unitary charge. Which when you think that there contracts still have to run in many cases 20 or 25 or even more years, these are very substantial savings.’

In a wide-ranging interview with PF, Armitt discussed concerns about the readiness of Local Enterprise Partnerships’ to take on responsibility for the Local Growth Fund from April 2015. Read more in the March issue of Public Finance.

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