16 November 2009 | Jake Kanter
The UK Conservative party is investigating alternative funding models for major projects, according to a report in the Observer newspaper.
Shadow chancellor George Osborne told the newspaper that private finance initiative (PFI) contracts had become "totally discredited", lacking transparency and failing to shift risk to private sector suppliers.
"Labour's PFI model is flawed and must be replaced. We need a new system that doesn't pretend that risks have been transferred to the private sector when they can't be, and which genuinely transfers risks when they can be," he said.
Osborne called for more transparent accounting to remove the "perverse incentives that result in PFI simply being used to keep liabilities off the balance sheet". He has reportedly asked shadow chief secretary Philip Hammond to identify other contracting models involving the private sector for construction projects, including bridges and schools.
Chief secretary to the Treasury Liam Byrne said ending PFI could transfer more risk to the public sector.
"George Osborne has already said the Tories would encourage hospitals to borrow against their assets and let them go bust if they fail to keep up repayments. Is he seriously proposing to put our schools and other public services under the same risk too? Our public services should be about guarantees, not gambles."
Earlier this year, the government pledged up to £2 billion of loans to help finance struggling PFI programmes. About 110 PFI projects were in the pipeline but some faced problems raising enough debt finance as banks cut lending as a result of the credit crunch (Web news, 4 March).