51-595: PF2 may refer to: The revised form of the Private Finance Initiative , known as PF2, in use in England and Wales between 2012 and 2018 The PSA PF2 platform , an automobile platform developed by engineers of the automotive group PSA Peugeot Citroën. Pink Friday 2 , 2023 album by Nicki Minaj [REDACTED] Topics referred to by the same term This disambiguation page lists articles associated with
102-504: A contract with a private sector consortium , technically known as a special-purpose vehicle (SPV). This consortium is typically formed for the specific purpose of providing the PFI. It is owned by a number of private sector investors, usually including a construction company and a service provider, and often a bank as well. The consortium's funding will be used to build the facility and to undertake maintenance and capital replacement during
153-624: A certain threshold, and PFI was a mechanism to take debt off the government balance sheet and so meet the Maastricht convergence criteria. PFI immediately proved controversial, and was attacked by Labour critics such as the Shadow Chief Secretary to the Treasury Harriet Harman , who said that PFI was really a back-door form of privatisation (House of Commons, 7 December 1993), and the future Chancellor of
204-491: A commercial rate. But, at the time, Vince Cable of the Liberal Democrats , subsequently Secretary of State for Business in the coalition , argued in favour of traditional public financing structures instead of propping up PFI with public money: The whole thing has become terribly opaque and dishonest and it's a way of hiding obligations. PFI has now largely broken down and we are in the ludicrous situation where
255-652: A full list of PFI contracts by department in March 2015. A study by HM Treasury in July 2003 was supportive, showing that the only deals in its sample which were over budget were those where the public sector changed its mind after deciding what it wanted and from whom it wanted it. A later report by the National Audit Office in 2009 found that 69 per cent of PFI construction projects between 2003 and 2008 were delivered on time and 65 per cent were delivered at
306-561: A means for increasing accountability and efficiency for public spending. PFI is controversial in the UK. In 2003, the National Audit Office felt that it provided good value for money overall; according to critics, PFI has been used simply to place a great amount of debt " off-balance-sheet ". In 2011, the parliamentary Treasury Select Committee recommended: "PFI should be brought on balance sheet. The Treasury should remove any perverse incentives unrelated to value for money by ensuring that PFI
357-473: A range of PFI projects. In December, 2012 the Treasury published a White Paper outlining the results of a review of the PFI and proposals for change. These aimed to: Under this "new approach", the government would become a minority equity co-investor in future projects, partly to better align the private and public sector interests in new projects. A consultation exercise was subsequently undertaken by
408-473: A result of the 2010 Spending Review , directing the cuts to those projects where least progress had been made with contract procurement and obtaining planning permission . In February 2011 the Treasury announced a project to examine the £835m Queen's Hospital PFI deal. Once savings and efficiencies are identified, the hope - as yet unproven - is that the PFI consortium can be persuaded to modify its contract. The same process could potentially be applied across
459-504: A services or operating company (called "Opco"). The main contract is between the public sector authority and the Topco. Requirements then 'flow down' from the Topco to the Capco and Opco via secondary contracts. Further requirements then flow down to subcontractors , again with contracts to match. Often the main subcontractors are companies with the same shareholders as the Topco. Prior to
510-408: Is a procurement method which uses private sector investment in order to deliver public sector infrastructure and/or services according to a specification defined by the public sector. It is a sub-set of a broader procurement approach termed public-private partnership (PPP), with the main defining characteristic being the use of project finance (using private sector debt and equity, underwritten by
561-446: 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 that genuinely transfers risks when they can be . . . On PFI, we are drawing up alternative models that are more transparent and better value for taxpayers. The first step is transparent accounting, to remove the perverse incentives that result in PFI simply being used to keep liabilities off
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#1732790272276612-530: Is not used to circumvent departmental budget limits. It should also ask the OBR to include PFI liabilities in future assessments of the fiscal rules". In October 2018, the Chancellor Philip Hammond announced that the UK government would no longer use PFI for new infrastructure projects; however, PFI projects will continue to operate for some time to come. The private finance initiative (PFI)
663-496: Is sometimes ignored, as when Argentina 'restructured' its foreign debt ). Repayment depends entirely on the ability of the consortium to deliver the services in accordance with the output specified in the contract. Under guidance issued prior to the reform proposals initiated in December 2011, public sector partners were permitted to contribute up to 30% of the construction costs as a capital contribution, generally handed over at
714-445: The 2007–2008 financial crisis , large PFI projects were funded through the sale of bonds and/or senior debt . Since the crisis, funding by senior debt has become more common. Smaller PFI projects – the majority by number – have typically always been funded directly by banks in the form of senior debt. Senior debt is generally slightly more expensive than bonds, which the banks would argue is due to their more accurate understanding of
765-583: The Chancellor, Philip Hammond , announced that the UK Government will no longer use PF2, the current model of Private Finance Initiative, for new infrastructure projects, due to value-for-money considerations and the difficulties caused by the collapse of PFI construction company Carillion . A Centre of Excellence is to be established within the Department of Health and Social Care to manage
816-598: The Exchequer in the coalition, sought to distance his party from the excesses of PFI by blaming Labour for its misuse. At the time, Osborne proposed a modified PFI which would preserve the arrangement of private sector investment for public infrastructure projects in return for part-privatisation, but would ensure proper risk transfer to the private sector along with transparent accounting: The government's use of PFI has become totally discredited, so we need new ways to leverage private-sector investment . . . Labour's PFI model
867-400: The Exchequer , Alistair Darling , warned that "apparent savings now could be countered by the formidable commitment on revenue expenditure in years to come". Initially, the private sector was unenthusiastic about PFI, and the public sector was opposed to its implementation. In 1993, the Chancellor of the Exchequer described its progress as "disappointingly slow". To help promote and implement
918-524: The Labour Secretary of State for Health , Alan Johnson , reaffirmed this commitment with regard to the health sector, stating that "PFIs have always been the NHS’s 'plan A' for building new hospitals … There was never a 'plan B'". However, because of banks' unwillingness to lend money for PFI projects, the UK government now had to fund the so-called 'private' finance initiative itself. In March 2009 it
969-803: The Labour Party, the Scottish National Party (SNP), and the Green Party , as well as commentators such as George Monbiot . Proponents of the PFI include the World Bank , the IMF and the Confederation of British Industry . Both Conservative and Labour governments sought to justify PFI on the practical grounds that the private sector is better at delivering services than the public sector. This position has been supported by
1020-628: The Labour government appointed Malcolm Bates to chair the efforts to review the policy with a number of Arthur Andersen staffers. They recommended the creation of a Treasury Task Force (TTF) to train public servants into PFI practice and to coordinate the implementation of PFI. In 1998, the TTF was renamed to "Partnership UK" (PUK) and sold 51% of its share to the private sector. PUK was then chaired by Sir Derek Higgs , director of Prudential Insurance and chairman of British Land plc . These changes meant that
1071-472: The Treasury failed to negotiate decent PFI deals with publicly owned banks, resulting in £1bn of unnecessary costs. This failure is particularly grave given the coalition's own admission in their national infrastructure plan that a 1% reduction in the cost of capital for infrastructure investment could save the taxpayer £5bn a year. The Department for Environment, Food and Rural Affairs (DEFRA) withdrew funding support from seven waste management PFI projects as
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#17327902722761122-620: The UK National Audit Office with regard to certain projects. However, critics claim that many uses of PFI are ideological rather than practical; Dr. Allyson Pollock recalls a meeting with the then Chancellor of the Exchequer Gordon Brown who could not provide a rationale for PFI other than to "declare repeatedly that the public sector is bad at management, and that only the private sector is efficient and can manage services well." To better promote PFI,
1173-420: The agreed standards it should lose an element of its payment until standards improve. If standards do not improve after an agreed period, the public sector authority is usually entitled to terminate the contract, compensate the consortium where appropriate, and take ownership of the project. Termination procedures are highly complex, as most projects are not able to secure private financing without assurances that
1224-400: The balance sheet. The government has been using the same approach as the banks did, with disastrous consequences. We need a more honest and flexible approach to building the hospitals and schools the country needs. For projects such as major transport infrastructure we are developing alternative models that shift risk on to the private sector. The current system – heads the contractor wins, tails
1275-496: The construction stage is financed using bank debt, and then bonds for the much longer period of operation. The banks who fund PFI projects are repaid by the consortium from the money received from the government during the lifespan of the contract. From the point of view of the private sector, PFI borrowing is considered low risk because public sector authorities are very unlikely to default . Indeed, under IMF rules, national governments are not permitted to go bankrupt (although this
1326-460: The contracting authority to enforce it. Many steps have been taken over the years to standardise the form of PFI contracts to ensure public interests are better protected. The typical PFI provider is organized into three parts or legal entities : a holding company (called "Topco") which is the same as the SPV mentioned above, a capital equipment or infrastructure provision company (called "Capco"), and
1377-415: The credit-worthiness of PFI deals – they may consider that monoline providers underestimate the risk, especially during the construction stage, and hence can offer a better price than the banks are willing to. Refinancing of PFI deals is common. Once construction is complete, the risk profile of a project can be lower, so cheaper debt can be obtained. This refinancing might in the future be done via bonds –
1428-432: The debt financing of the project will be repaid in the case of termination. In most termination cases the public sector is required to repay the debt and take ownership of the project. In practice, termination is considered a last resort only. Whether public interest is at all protected by a particular PFI contract is highly dependent on how well or badly the contract was written and the determination (or not) and capacity of
1479-572: The delegates adopted a resolution condemning PFI and calling for an independent review of the policy, which was ignored by the party leadership. In education, the first PFI school opened in 2000. In 2005/2006 the Labour Government introduced Building Schools for the Future , a scheme introduced for improving the infrastructure of Britain's schools. Of the £2.2 billion funding that the Labour government committed to BSF, £1.2 billion (55.5%)
1530-690: The end of the construction period and subject to appropriate risk transfer and performance regimes being in place. The government indicated in its reform consultation that allowance for higher levels of capital contribution was being considered, noting the some international practice also offered examples of higher levels of capital contribution. PFI contracts generally allocate risks to the private sector contractor, who takes out appropriate insurance to cover these risks and includes anticipated insurance costs in its PFI charges. However, it has been recognised that levels of insurance premium are variable following cyclical economic changes, and difficult to predict over
1581-528: The existing PFI contracts in the NHS. There have been over 50 English hospitals procured under a PFI contract with capital cost exceeding £50 million: There have been some six Scottish hospitals procured under a PFI contract with capital cost exceeding £50 million: The following is a selection of major projects in other sectors procured under a PFI contract: The Guardian published a full list of PFI contracts by department in July 2012, and HM Treasury published
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1632-509: The financial risk back to the public sector, then that has to be reflected in the structure of the contracts. The public sector cannot simply step in and lend the money to itself, taking more risk so that the PFI structure can be maintained while leaving the private sector with the high returns these projects can bring. That seems to us fairly ridiculous. In an interview in November 2009, Conservative George Osborne , subsequently Chancellor of
1683-481: The government is having to provide the funds for the private finance initiative. In opposition at the time, even the Conservative Party considered that, with the taxpayer now funding it directly, PFI had become "ridiculous". Philip Hammond , subsequently Secretary of State for Transport in the coalition, said: If you take the private finance out of PFI, you haven’t got much left . . . if you transfer
1734-566: The government regarding the terms on which the public sector stake would be managed, aiming for a generally consistent approach across projects but with scope for details to be finalised prior to operation to reflect any project-specific issues. The government's response to the consultation and the "Standard PF2 Equity Documents" were published in October 2013. Under the Priority School Building Programme which
1785-455: The government transferred the responsibility of managing PFI to a corporation closely related with the owners, financiers, consultants, and subcontractors that stood to benefit from this policy. This created a strong appearance of conflict of interest. Trade unions such as Unison and the GMB , which are Labour supporters, strongly opposed these developments. At the 2002 Labour Party Conference ,
1836-410: The grounds that they are a form of odious debt . Critics such as Peter Dixon argue that PFI is fundamentally the wrong model for infrastructure investment, saying that public sector funding is the way forward. In November 2010 the UK government released spending figures showing that the current total payment obligation for PFI contracts in the UK was £267 billion. Research has also shown that in 2009
1887-565: The handling of benefit payments at post offices. Two months after Tony Blair 's Labour Party took office, the Health Secretary , Alan Milburn , announced that "when there is a limited amount of public-sector capital available, as there is, it's PFI or bust". PFI expanded considerably in 1996 and then expanded much further under Labour with the NHS (Private Finance) Act 1997 , resulting in criticism from many trade unions , elements of
1938-430: The life-cycle of the contract. Once the contract is operational, the SPV may be used as a conduit for contract amendment discussions between the customer and the facility operator. SPVs often charge fees for this go-between 'service'. PFI contracts are typically for 25–30 years (depending on the type of project); although contracts less than 20 years or more than 40 years exist, they are considerably less common. During
1989-734: The lifetime of a PFI project. PFI terms were amended in 2002 and standardised in 2006 to allow for insurance cost sharing mechanisms, whereby the client and contractor could share the risk of market fluctuation in insurance premium costs. PFI was implemented in the UK by the Conservative Government led by John Major in 1992. It was introduced against the backdrop of the Maastricht Treaty which provided for European Economic and Monetary Union (EMU). To participate in EMU, EU member states were required to keep public debt below
2040-413: The period of the contract the consortium will provide certain services, which were previously provided by the public sector. The consortium is paid for the work over the course of the contract on a "no service no fee" performance basis. The public authority will design an "output specification" which is a document setting out what the consortium is expected to achieve. If the consortium fails to meet any of
2091-533: The policy, he created the Private Finance Office within the Treasury, with a Private Finance Panel headed by Alastair Morton . These institutions were staffed with people linked with the City of London , and accountancy and consultancy firms who had a vested interest in the success of PFI. The largest of the early PFI projects was Pathway, announced by Peter Lilley in 1995, which was to automate
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2142-554: The public sector. On Monday 11 April 2016, 17 PFI-funded schools in Edinburgh failed to open after the Easter break because of structural problems identified in two of them the previous Friday; the schools had been erected in the 1990s by Miller Construction. A January 2018 report by the National Audit Office found that the UK had incurred many billions of pounds in extra costs for no clear benefit through PFIs. In October 2018,
2193-464: The public) in order to deliver the public services. Beyond developing the infrastructure and providing finance , private sector companies operate the public facilities, sometimes using former public sector staff who have had their employment contracts transferred to the private sector through the TUPE process which applies to all staff in a company whose ownership changes. A public sector authority signs
2244-559: The same title formed as a letter–number combination. If an internal link led you here, you may wish to change the link to point directly to the intended article. Retrieved from " https://en.wikipedia.org/w/index.php?title=PF2&oldid=1211824788 " Category : Letter–number combination disambiguation pages Hidden categories: Short description is different from Wikidata All article disambiguation pages All disambiguation pages Private Finance Initiative#PF2 The private finance initiative ( PFI )
2295-464: The system have never been weaker. The government is very concerned to keep the headline rates of deficit and debt down, so it's looking to use an increasingly expensive form of borrowing through an intermediary knowing the investment costs won't immediately show up on their budgets. The high cost of PFI deals is a major issue, with advocates for renegotiating PFI deals in the face of reduced public sector budgets, or even for refusing to pay PFI charges on
2346-484: The taxpayer loses – will end. Despite being so critical of PFI while in opposition and promising reform, once in power George Osborne progressed 61 PFI schemes worth a total of £6.9bn in his first year as Chancellor. According to Mark Hellowell from the University of Edinburgh : The truth is the coalition government have made a decision that they want to expand PFI at a time when the value for money credentials of
2397-469: The total capital value of PFI contracts signed throughout the UK was £68bn, committing the British taxpayer to future spending of £215bn over the life of the contracts. The 2007–2008 financial crisis presented PFI with difficulties because many sources of private capital had dried up. Nevertheless, PFI remained the UK government's preferred method for public sector procurement under Labour. In January 2009
2448-458: Was a United Kingdom government procurement policy aimed at creating " public–private partnerships " (PPPs) where private firms are contracted to complete and manage public projects. Initially launched in 1992 by Prime Minister John Major , and expanded considerably by the Blair government , PFI is part of the wider programme of privatisation and macroeconomic public policy, and presented as
2499-431: Was announced that the Treasury would lend £2bn of public money to private firms building schools and other projects under PFI. Labour's Chief Secretary to the Treasury , Yvette Cooper , claimed the loans should ensure that projects worth £13bn – including waste treatment projects, environmental schemes and schools – would not be delayed or cancelled. She also promised that the loans would be temporary and would be repaid at
2550-646: Was launched in 2014 by the Education and Skills Funding Agency , the rebuilding and/or refurbishment of 46 schools in England was funded and procured using the PF2 model. A specialist unit was set up within the Scottish Office in 2005 to handle PFI projects. In November 2014, Nicola Sturgeon announced a £409m public-private funding package which would be funded through a non-profit distributing model which would cap private sector returns, returning any surplus to
2601-488: Was to be covered by PFI credits. Some local authorities were persuaded to accept Academies in order to secure BSF funding in their area. In 2003 the Labour Government used public-private partnership (PPP) schemes for the privatisation of London Underground 's infrastructure and rolling stock. The two private companies created under the PPP, Metronet and Tube Lines were later taken into public ownership. By October 2007
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