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Budget 2018: Hammond kills off PFI

Chancellor Philip Hammond has killed off the prospect of any further schemes being funded by PFI or PF2.

Addressing parliament for the 2018 Budget, Mr Hammond said there was evidence that PFI and PF2 were neither delivering value for money nor sufficiently transferring risk to the private sector.

Mr Hammond said: “I remain committed to the use of public-private partnership where it delivers value for the taxpayer and genuinely transfers risk to the private sector.

“But there is compelling evidence that the private finance initiative does neither.”

Current deals will be honoured, he said, but the chancellor vowed not to approve any new schemes under either PFI or PF2.

Mr Hammond added that the public sector would no longer be a “pushover” as a client and a new division would be set up in the Department of Health and Social Care to manage existing PFI deals.

Reacting to the news, Cast chief executive Mark Farmer said the focus on transferring risk from public to private sector was concerning,

“Any future public procurement regime has to surely be about value not risk transfer, and a more balanced approach to government holding risk as an intelligent client, if we are to avoid another Carillion scenario,” he said.

“One can only hope his choice of language was inadvertent, as it does not correspond with the stated aims of IPA’s Transforming Infrastructure Performance Programme.”

Clyde & Co partner Liz Jenkins suggested the government’s £600bn infrastructure pipeline meant it would need to secure private investors in some form to fund development.

“We await the details but one would expect a new model that continues to allow the private sector the opportunity to fund public infrastructure – we simply cannot build the infrastructure this country needs without it,” Ms Jenkins said.

Two schemes, the A303 tunnel at Stonehenge and the Lower Thames Crossing, had been considered for PF2 procurement.

The government was recently forced to pay for the completion of two hospitals that Carillion was building after the PFI contracts were terminated.

The Budget also saw the Treasury commit £28.8bn for road investment.

This included a £25.3bn budget for Highways England’s Road Investment Strategy covering 2020 to 2025 – a £10bn increase on the previous five-year RIS.

Additionally, local councils will receive an extra £420m for repairing potholes and bridges in 2018/19, along with £150m to pay for minor schemes such as junction and roundabout improvements.

Local councils will also be access a new £675m Future High Streets Fund to develop town centre regenerations, part of a wider set of initiatives including business rate cuts to help high street retailers.

Northern Powerhouse Rail will receive £37m and East West Rail (to link Cambridge with Oxford) £20m to fund further development of their plans.

Further changes to the apprenticeship levy were announced, with SMEs’s contribution halved from 10 per cent of training costs to 5 per cent.

The government will pump £240m into the scheme to cover the cut.

This followed the announcement earlier this month that the cap on how much large firms can give to smaller suppliers for apprenticeship training would be raised from 10 per cent to 25 per cent.

In a change to insolvency rules, HMRC will be made a preferred creditor in cases from April 2020.

Taxes such as VAT, PAYE, employee national insurance and Construction Industry Scheme deductions that are collected by firms on behalf of the government will effectively be ringfenced for HMRC to retrieve.

However, the rules for corporation tax and employer NICs owed to HMRC by insolvent companies will not be changed.

The national living wage will increase by 4.9 per cent in April 2019 to £8.21 per hour, which is likely to increase costs for firms with soft facilities management services such as cleaning and security.

In its last annual report, Interserve cited an increase in the national living wage for reducing its operating profit.

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