HM Treasury Press Notice HMT 3 156/95 28 November 1995 CAPITAL SPENDING BOOSTED BY PRIVATE FINANCE PARTNERSHIPS ___________________________________________________________________ Chancellor Kenneth Clarke today set out a package of measures designed to boost the input of private finance into public projects. The package means that: - A minimum of 14,000 million pounds of private finance contracts will be agreed by the end of 1998/9. This includes the 5,000 million pounds of private finance contracts on course to be agreed by the end of 1995/6; - Including PFI, public sponsored capital spending is expected to continue to run at record levels; - The Private Finance Panel will publish an illustrative list of over 1000 projects, worth over 25,000 million pounds, that they have identified as offering potential partnerships between the public and private sector; - An action plan, drawn up to spur progress on PFI, will be launched; - Detailed guidance will be published, with examples of working projects, to act as a handbook for the setting up and operation of private finance deals; - Every major Government Department is now taking forward PFI projects; - There will be an intensive private finance training programme for civil servants; In addition, there has been a recent relaxation of the capital finance rules for local authorities allowing them more scope to pursue private finance. The Chancellor also announced a wide range of new contracts for privately financed public projects as examples of how the PFI was gaining momentum; - A partnership between South Buckinghamshire NHS Trust and the private sector for the 32 million pound refubishment of the District General Hospital on two sites at High Wycombe and Amersham; - A further 500 million pounds tranche of 25 road schemes to be designed, built, financed and operated by the private sector on behalf of the public sector; - The Highland Regional Council`s have put a 45 Million pound water treatment project for which bids are due in by 5 December; - The 50 million pound refurbishment of the 500 inmate Category B Lowdham Grange Prison by the Prison service. The Chancellor said that the Private Finance Initiative was taking root and growing as value for money implications became clear and more pioneering projects were signed, acting as models for others to follow. Examples signed earlier this year include: - The 400 million pound PFI contract between London Underground and GEC Alsthom providing new rolling stock and associated services on the Northern Line. This transfers twice the performance risk available via conventional finance. The specified reliability, for example, is one train faliure in every 30,000 km in service, nearly four times better than the best fleet currently on the Underground; - A 150 million pound deal between the Department of Social Security and Andersen Consulting to replace the National Insurance computer could deliver a service at up to 50 per cent less cost than the public sector alternative; - The privately financed prisons to be built at Bridgend and Fazakerley, at 50 million pounds each, will transfer to the private sector partner considerably more project management risk than in old-style procurement. The Private Finance Initiative is bringing about a sea-change in public procurement, both on the public and private sector sides. At the heart of the Private Finance Initiative lies a significant culture change. The public sector no longer simply signs a contract to buy a prison, a train or a computer system. Under the Private Finance Initiative the Government pays to have specific services at guaranteed levels of performance - available prison places, trains running on the Northern Line, National Insurance records kept up to date. The Government chooses the quality services the public requires and then goes out and aquires them from private companies with the finance and expertise to deliver them. Under the PFI, the private sector puts its own money at risk and brings its own skills to bear to deliver more and better infrastructure projects at a lower overall cost to the taxpayer. The capital and management skills are provided by the private sector, but the service is still a public one. The PFI is unlocking new resources and will increacingly replace old-style public sector capital spending, delivering far more on the ground than what went before it. The cost overruns that characterised many traditionally financed capital projects are being replaced by better quality projects that promise some exceptional service improvements. Capital spending figures tell only half the story. The actual end value of a PFI project to the economy is typically very much more than the initial capital spend by the private sector because the Government buys not only the use of the capital asset, but also the expertise of the private sector to manage the asset. Operational Note 1. The following will be released at 12 midday tomorrow, 29 November, at a PFI media briefing to be given by Michael Jack, Financial Secretary to the Treasury: - The new "Jack Plan" to progress PFI; - The new PFI handbook "Private Opportunity - Public Benefit". - The Private Finance Panel`s new illustrative list of 1000 potential PFI projects, worth over 25,000 million pounds. The briefing will take place at HM Treasury and will be co-hosted by Sir Christopher Bland, Chairman of the Private Finance Panel. Journalists attending should ring 0171 270 5644 to register. PRESS OFFICE HM TREASURY PARLIAMENT STREET LONDON SWIP 3AG 0171 270 5238 Notes to Editors 1. The Private Finance Initiative is a complete change in the way government does business. Instead of aquiring a depreciating asset, exposing itself to cost overruns and then managing the asset itself, irrespective of whether others could do that better, under PFI the Government contracts to buy specific services from the private sector. Risks are shared, reducing government exposure and introducing the prospect of reward to contractors who manage services well. 2. A wide range of projects have already been agreed or planned: - Health: 50 smaller projects already completed with a capital value of over 100 million pounds. Currently 24 projects with a capital value of over 25 million pounds in procurement stage. 500 projects with capital value of over 2000 million pounds identified. - Information Technology: Over 100 projects identified with a capital value of around 2 billion pounds. Cabinet Office setting up a unit to take Government IT/IS projects forward under PFI. - Transport: Prime Minister announced first DBFO road contract, Roadlink`s winning bid to upgrade and maintain the A69 Carlisle to Newcastle road, during his Mansion House Speech 20/11/ 95. Contracts expected to be announced shortly for remaining roads in first tranche ( A1 - M1 Link Road 190m pounds, Alconbury - Peterborough upgrade on A1(M) 140m pounds, A41/A417 Swindon - Gloucester corridor 35m pounds ). Tenders in for second tranche worth 500 million pounds. Altogether, 37 DBFO road projects in England worth 1000 million pounds. Light rail examples include Croydon Tramlink. Channel Tunnel Rail Link, value 2.7 billion pounds, expected to be agreed early in 1996. London Transport currently pursuing power supply and communications systems. Contract for Northern Line trains, worth 400 million pounds, showing substantial value for money savings over public sector alternative. - Local Authorities: Substantial potential (gross capital spending of 8 billion pounds a year). Government introduced a number of measures in 1995 to remove obstacles, encourage collaboration between local authorities and the private sector and to increase the flow of private investment. Further options are being considered to extend PFI to the full range of local authority capital projects. Local authority associations in England recently decided to establish Private Finance Units to promote the PFI. - Scotland: The Skye Bridge crossing (capital value 24 million pounds) has been completed along with projects in the health sector. Tenders for the new Royal infirmary of Edinburgh - a 140 million pound project - will be sought in early January. Local authorities are beginning to show interest. Bids for Highland Regional Council`s 45 million pound water treatment project are due in by 5 December. - Education: In addition to the PFI, a large number of publicly funded private institutions have been very successful in levering in private funding. Much of this mirrors the risk sharing characteristics of the PFI. Universities and FE colleges have attracted over 1,600 million pounds of private finance. The Further Education Training Council have announced over 480 potential projects with a capital value of over 650 million pounds. - Winner of 200 million pound contract to refurbish Treasury headquarters to be announced early 1996. 3. If you have access to the Internet, you can find this information and more on: http://www.hm-treasury.gov.uk