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Councils were this week granted radical new freedoms to enter into private finance initiative schemes, as ministers...
Councils were this week granted radical new freedoms to enter into private finance initiative schemes, as ministers predicted an explosion of local authority partnership projects with the private sector.

Announcing key changes to the capital finance regulations - with the promise of £250 million of revenue support - local government minister David Curry revealed that the existing regime will be liberalised from the end of the month:

-- Councils will be able to commission private sector schemes without having to reserve matching capital funding

-- Revenue payment to finance schemes will not be caught by capping rules

The first change means councils will be able to avoid a project counting against their government-authorised credit allocation, as long as at least 20% of the risk is transferred to the private partner.

Such a risk transfer will automatically qualify a project as a PFI transaction under a new contract structure test.

Where projects fall just outside the PFI risk threshold, councils will be able to ask Whitehall for credit approvals that would not count against the public sector borrowing requirement.

Ministers will also consider schemes involving authorities' own DSOs.

On top of the decision to free revenue payments from capping rules, Mr Curry said revenue support would be made available for £50m of PFI investment in England in 1996-97.

A further £200m would be made available in 1997-98 to 'keep pace with the expected build-up of projects', Mr Curry said.

'We intend to give local authorities all the help they need, with experts from government departments ready to work with them to ensure the delivery of practical schemes. It is now up to councils and other authorities to pick up the tools we have given them and make the PFI work.'

The setting of the risk threshold at 80% is a partial victory for Public Private Partnerships Programme Ltd, the company set up by the local authority associations to promote the PFI.

Original government proposals insisted that councils should only bear 70% of the risk, transferring at least 30% to the private sector, although 4Ps pressed for a figure of 85-90% for councils.

4Ps also welcomed the improvements to the revenue support mechanism, but warned that councils would want to see evidence that the support would be truly additional to this year's RSG settlement.

4Ps chairman Tony Colman said: 'The additional revenue support should ensure that the PFI will now provide a real opportunity for authorities to procure additional services for their communities in partnership with the private sector.'

But he said 4Ps would now lobby for further changes to regulations to allow councils even greater freedoms.

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