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Government to lend to PFI firms Government to 'prop up' PFI deals
(about 4 hours later)
The government is to lend up to £2bn to firms struggling to build schools and other public projects under the Private Finance Initiative (PFI). Ministers are to lend £2bn of public money to private firms building schools and other 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. There have been concerns that projects like the M25 widening scheme would be held up, as firms faced difficulties raising money due to the credit crunch.
She said lending the firms money meant projects and jobs were safeguarded. Minister Yvette Cooper said the move would save projects and jobs.
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". But the SNP called it a "humiliating bail-out". The Lib Dems said pumping public funds into PFI was "ludicrous".
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.
'Support jobs''Support jobs'
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. BBC political correspondent Norman Smith said ministers had rejected calls for the government to take over the projects and instead would lend up to £2bn this year to prop them up.
On Tuesday Ms Cooper said about 110 PFI projects were in the pipeline and had "consistently demonstrated value for money". In a written statement, Chief Secretary to the Treasury Ms Cooper said the loans would ensure projects worth £13bn - including waste treatment projects, environment schemes and schools - would not be disrupted.
She said the loans would be temporary and would be repaid at a commercial rate.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
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 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 under spends on previous projects", she said.
The money would initially be found from "unallocated funds and departmental underspends on previous projects", she said.
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".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".
'Ludicrous situation''Ludicrous situation'
But opposition parties have questioned whether PFI is the best way to go about building big projects. But Liberal Democrat Treasury spokesman Vince Cable said the government should consider going back to more traditional public financing structures rather than propping up PFI.
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."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.""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. It's a bit of a climbdown really David TaylorLabour MP
Twelve major projects had been cancelled - half of all NHS projects were due to be finalised this year or last. SNP Treasury spokesman Stewart Hosie said it was a "humiliation" for the government, adding: "Labour have bailed out the bankers, and now Alistair Darling seems set to prop-up PFI projects."
Mr Lamb said: "PFI provided bad value even in the good times, but it is clearly collapsing now that times are tough." He added: "Why is public money being used to prop up a failing system that gives such a bad return compared to traditional public procurement?"
And Labour backbencher David Taylor told the BBC: "It's a bit of a climbdown really. It's deeply ironic that public funds are needed to save the private finance initiative."
But David Messer, chairman of the PPP Forum, told the BBC PFI had only ever been a "procurement method" to get around a lot of the inefficiencies there had been in public sector procurement - which had often led to delays and cost overruns.
He said there was "no reason" for the government not to step in, adding: "In France up to 80% of the debt in public private projects can be provided by the government."
Meanwhile 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.
'Completely unconnected''Completely unconnected'
Twelve major projects had been cancelled - half of all NHS projects were due to be finalised this year or last which he said showed PFI was "clearly collapsing now that times are tough".
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.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. "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. TUC general secretary Brendan Barber said: "The chancellor is absolutely right to take this decisive action to put money into PFI projects to stop their collapse.
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." "But this rescue is another example of privatising the very good profits that many PFI companies have made but having to nationalise the losses now times are tough."
Meanwhile the government has announced that thousands of school modernisation projects across England will start a year early to boost the construction industry. John Cridland, deputy director general of the Confederation of British Industry, said: "Getting PFI projects moving will help public service improvements continue and protect jobs in the construction and services industries.
"The private sector has an excellent track record in delivering infrastructure projects on time and to budget, and it would be deeply regrettable if this expertise were lost because of the credit crunch."
The government has also 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.