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CAP RULES TO CHANGE TO BOOST PFI PROJECTS

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The government is actively looking to ease capping restrictions to allow the private finance initiative to flourish...
The government is actively looking to ease capping restrictions to allow the private finance initiative to flourish, according to local government minister David Curry.

Mr Curry, a long time opponent of capping, told an audience of senior finance officers on Thursday 16 November that a change to the rules was needed.

'The capping arrangements at the moment will have to change if we want the private finance initiative to do what we want it to do,' he said.

'We have already moved a long way with the PFI but I do not want to lose momentum.'

He said the government wanted to extend the PFI beyond simply upgrading and replacing existing assets.

'My officials are giving this priority. If practical solutions can be found I will look to make further enabling rule changes next year,' he said.

'The government is not approaching this as if there was some biblical set of rules which are universally applicable. What we are doing is trying to implement solutions to clearly identified obstacles to local partnership.'

Mr Curry repeated his call for councils to come forward with projects.

The positive tone of the speech, which gave further evidence that the DoE is actively pushing the initiative after a slow start, was welcomed by delegates.

Mr Curry gave little indication of how the relaxation would be implemented. But finance officers said one possibility would be to allow councils to disregard revenue spending on PFI schemes when calculating capping limits, which would encourage them to transfer assets to the private sector and give scope for new projects.

This would only allow councils to raise money locally for projects so the problem of gearing, whereby a small increase in spending leads to a disproportionate increase in council tax, would remain.

Mr Curry said the government would also be looking at the capital finance regulations. At the moment councils receive 100% grant to cover the cost of basic credit approvals, but revenue to back privately funded projects does not get the same support.

One option would be to abolish the capital finance element of standard spending assessments and spread the funds across the services.

Martin Pilgrim, head of finance at the Association of Metropolitan Authorities, said he would reserve judgment on the proposals for liberalising capping until the details emerged but he welcomed the progress by the government to date.

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