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PFI reform 'will save £1.5bn'

20 Jul 11 The Treasury has published plans to make savings of at least £1.5bn across the 495 private finance initiative (PFI) projects in England.

The plans follow pilot projects at the Queen’s Hospital in Romford and two Ministry of Defence pilots, at Corsham and the Welbeck Defence Sixth Form College. The Treasury says that these have confirmed savings opportunities of around 5% of annual payments.

The Cabinet Office efficiency and reform group, supported by experts from the Treasury and Local Partnerships, will lead a programme to secure the savings across the public sector. A team of PFI specialists will be drawn from across government to work around the country to deliver savings. Updated guidance and advice on how savings can be made will be published on the Treasury website.

The savings pilots have confirmed that the three main areas of savings in operational PFI contracts are:

• Improved management of contracts, for example, through reducing wasteful energy consumption and through the public sector sharing in savings on insurance.

• Making efficient use of space, for example, from subletting or mothballing surplus building space.

• Reviewing soft service requirements, so that the public sector does not buy more than it needs when specifying facilities management such as window cleaning and frequency of decoration.

The government has already taken other significant steps to improve the cost effectiveness and transparency of PFI, including:

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• At the spending review, the government abolished PFI credits to create a level playing field for all forms of public procurement.

• In April the government introduced new guidance to departments to strengthen the approvals process of all projects. All major projects outside of a department’s delegated authority now need to go through three approval points.

• This month for the first time the government included PFI liabilities in the unaudited Whole of Government Accounts. This complements the PFI statistics published on the Treasury website.

 Lessons from the savings pilots will also be factored into the Department for Education's new privately financed Priority School Building Programme.

Chancellor George Osborne said: “We are determined to reform PFI contracts to protect the taxpayer. Today’s announcement, to find savings of £1.5bn, is one of a number of ambitious steps to secure better value for money in PFI contracts. This is just the beginning and we will continue to look for innovative ways to improve the delivery of private finance in the public sector.”

Cabinet Office minister Francis Maude said: “Savings from private finance initiatives form an important part of this government’s ongoing challenge to reduce cost and waste so that we can protect vital jobs and services on the front line. With this new programme we plan to save £1.5bn from PFI contracts. We will need to be tough with ourselves and tough with our suppliers if we are to deliver these savings, but we have the discipline required to do so. We are working hard to identify programme areas across government where there could be room for increasing efficiency while reducing overhead costs, so we can direct funds to support and maintain the services we all rely on.”

The pilot was launched in February 2011 as part of a wider review of public sector contracts following from Sir Philip Green’s efficiency review. The review was led by HM Treasury’s Infrastructure UK, working with the Cabinet Office’s efficiency and reform group, the Department of Health and the Barking, Havering and Redbridge University Hospitals NHS Trust.

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