Wednesday, 29 October 2008

Financial turmoil slows PFI deals

Could Leeds Housing PFI schemes be in trouble? Little London and Beeston Hill and Holbeck PFI schemes have yet to reach contract and there are signs that PFI might be on the way out...
Leon Walker, Regeneration & Renewal, 24 October 2008

The credit crunch is delaying several regeneration-related private finance initiative (PFI) deals, the Treasury admitted this week.

"Some PFI deals are suffering as a result (of the economic crisis) and are taking slightly longer to close," a spokesman for the department said. But the Treasury remains committed to PFI, he added.

The Treasury said that more than a dozen PFI deals have been signed this year, the majority of them in the second half of the year, despite the growing problems over bank lending.

However, public finance experts have warned that the recent turmoil on the financial markets may sound the death knell for the controversial PFI programme, which includes roads and housing schemes.

"The Government has relied so heavily on PFI for so long, and that may not be available any longer," said Chris Leslie, director of think-tank the New Local Government Network. "I think we are going to go through a major shift in the way regeneration is funded."

Trust between government and the private sector - a vital component of PFI deals - has been shattered by the stock market collapse, according to Leslie.

Tony Travers, director of the Greater London Group at the London School of Economics, added: "Much of regeneration funding in Britain is based on cheap credit, which has to drive long-term return on investment. I'm pretty sure that (banks) won't be so keen to lend in the future."

In March, the Government said that deals for PFI projects totalling £23.3 billion are due to be signed over the next five years.

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