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Government to lend to PFI firms Government to lend to PFI firms
(31 minutes later)
The government is to lend up to £2bn of taxpayers' money to firms building schools and other public projects under the Private Finance Initiative (PFI). The government is to lend up to £2bn to firms struggling to build schools and other public projects under the Private Finance Initiative (PFI).
Treasury minister Yvette Cooper said some firms were having trouble raising enough money due to the credit crunch.Treasury minister Yvette Cooper said some firms were having trouble raising enough money due to the credit crunch.
She said lending the firms money meant safeguarded projects and jobs. She said lending the firms money meant projects and jobs were safeguarded.
Meanwhile the Lib Dems say £2.5bn of hospital PFI projects are "under threat" and say the scheme is "clearly collapsing now that times are tough".
PFI sees private firms building - and in some cases running - public projects such as schools and hospitals in return for state payments over 20 or 30 years.PFI sees private firms building - and in some cases running - public projects such as schools and hospitals in return for state payments over 20 or 30 years.
The Treasury said up to £2bn could be lent this year - last month the Public Private Partnership Forum it might need a £4bn bail-out within 18 months, due to problems raising funding.
On Tuesday Ms Cooper said about 110 PFI projects were in the pipeline and had "consistently demonstrated value for money" and public satisfaction.
'Support jobs''Support jobs'
In a written statement, she said lending to PFI projects would safeguard £13bn of public investment - including £3.5bn in waste treatment and environmental projects, £3.1bn of transport projects and £2.4bn of schools schemes The Treasury said up to £2bn could be lent this year - last month the Public Private Partnership Forum said it might need a £4bn bail-out within 18 months, due to problems raising funding.
"It will also avoid the significant delays which would be entailed by switching these projects to alternative procurement approaches," she said. On Tuesday Ms Cooper said about 110 PFI projects were in the pipeline and had "consistently demonstrated value for money".
She said the loans would be temporary and would be repaid at a commercial rate.
It will be a temporary intervention. As with normal commercial lending these loans will bear interest and will be repaid over the life of the project Yvette CooperChief Secretary to the TreasuryIt will be a temporary intervention. As with normal commercial lending these loans will bear interest and will be repaid over the life of the project Yvette CooperChief Secretary to the Treasury
"These projects can therefore go ahead swiftly and support jobs and the economy and help prepare the country for the future recovery." In a written statement, she said lending to PFI projects would safeguard £13bn of public investment - including £3.5bn in waste treatment and environmental projects, £3.1bn of transport projects and £2.4bn of schools schemes
She said some projects were "finding difficulties obtaining sufficient debt as a result of the global credit crunch" and the government would lend to those that could not raise the money on acceptable terms.She said some projects were "finding difficulties obtaining sufficient debt as a result of the global credit crunch" and the government would lend to those that could not raise the money on acceptable terms.
The money would initially be found from "unallocated funds and departmental underspends on previous projects", she said.The money would initially be found from "unallocated funds and departmental underspends on previous projects", she said.
She said equity investors would "continue to bear the primary risk" and argued that providing the money was the best way to get "construction underway swiftly and support the economy". The government says it is best to stick with the PFI structure because it means construction will begin more quickly and the private sector will "continue to bear the risk of cost overruns and delays".
"It will be a temporary intervention. As with normal commercial lending these loans will bear interest and will be repaid over the life of the project," she said. 'Ludicrous situation'
But opposition parties have questioned whether PFI is the best way to go about building big projects.
Liberal Democrat Treasury spokesman Vince Cable said the government should consider going back to more traditional public financing structures rather than propping up PFI.
"The whole thing has become terrible opaque and dishonest and it's a way of hiding obligations," he told BBC Radio 4's World at One.
It's a bit of a climbdown really David TaylorLabour MP
"PFI has now largely broken down and we are in the ludicrous situation where the government is having to provide the funds for the private finance initiative."
His colleague Norman Lamb, the Lib Dems' health spokesman, said government figures released in answer to a Parliamentary question, showed more than £2.5bn of hospital building projects were under threat.
Twelve major projects had been cancelled - half of all NHS projects were due to be finalised this year or last.
Mr Lamb said: "PFI provided bad value even in the good times, but it is clearly collapsing now that times are tough."
'Completely unconnected'
But a spokeswoman for the Department of Health said the 12 projects had been stopped over the course of 2007 and 2008 - having effectively been on hold for a year or more before that due to local health reviews.
"The last one to be 'cancelled' was last summer 2008, so nothing new has happened; this pre-dates the credit crunch; and the reasons are completely unconnected with any credit crunch issues," she said.
PFI is also opposed by many Labour backbenchers who believe private firms should not be making money from building schools and hospital.
North West Leicestershire MP David Taylor told the BBC: "It's a bit of a climbdown really. It's ironic that public funds are needed to save the private finance initiative."
Meanwhile the government has announced that thousands of school modernisation projects across England will start a year early to boost the construction industry.Meanwhile the government has announced that thousands of school modernisation projects across England will start a year early to boost the construction industry.
Ministers said more than 100 local authorities will share £499m capital investment brought forward from 2010-11.Ministers said more than 100 local authorities will share £499m capital investment brought forward from 2010-11.