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Results of a consultation into how local authority private finance initiative support is calculated were announced ...
Results of a consultation into how local authority private finance initiative support is calculated were announced today by local government minister Nick Raynsford.

The consultation, carried out between July and October 2004, sought

the views of local authorities and other interested parties on a

range of proposals to create a more level playing field between PFI

and conventional procurement. The proposed changes were welcomed by

most respondents, with 92% favouring a move to an annuity based


Under the reformed scheme, grant for new PFI schemes will be provided

at a constant level over the life of the contract, calculated as an

annuity. A 'scaling factor' will also be applied to new PFI

projects, so that any adjustment needed to reflect the total

available is applied equally to PFI and to support for conventional


Mr Raynsford said:

'PFI has a small but important role in the range of procurement

options available to local authorities. Used properly it can

represent very good value for money, helping local authorities to

deliver services which meet the rising expectations of local


'The reformed PFI grant system will help establish a more level

playing field of procurement options. By eliminating bias in favour

of PFI and bias against, it will ensure that decisions are taken as

much as possible on value for money grounds, rather than the level of

grant support. The reforms announced today mean that PFI will

continue to be an important element in the procurement armoury,

offering real opportunities for local authorities to work in

partnership with the private sector and other agencies.'

Under the reformed grant system, PFI schemes already receiving grant

will be given the option of either switching to an annuity system or

continuing to receive grant under the previous declining balance

grant regime. Most respondents with projects already being paid

stated that they wished to switch to an annuity system.

Following responses to the consultation, the length of annuity

payments will be based on the actual contract length, rather than the

standard length of 25 years proposed in the consultation document of

July 2004.


1. The main reforms to the PFI grant system announced today are:

* New schemes (those which have not issued 'Invitation To Negotiate'

documentation by 1 April 2005) will receive support calculated on an

annuity basis.

* Other schemes (including those already receiving support) will be

given the option of switching to an annuity grant or receiving

support calculated on the existing basis.

* The annuity payments will be based on actual contract length. Where

schemes have already received grant under the existing system this

will be deducted before the annuity is calculated over the remainder

of the contract.

* A scaling factor, with a maximum of 1.0, will be set and remain

constant for a particular scheme whilst it receives support. Schemes

already receiving support will have a scaling factor of 1.0 (ie there

will be no impact).

* Interest rates and scaling factors for new schemes will be set

based on the financial year in which the scheme is endorsed (rather

than when the contract is signed, as now). 2005-06 rates will be used

for schemes in procurement.

* The start date for payments will be clarified to make it clear that

it should be on the basis of the relevant permanent assets becoming

available, and not on the basis of interim services or temporary

assets. The position of phased schemes or those with transferred

assets will be set out. This will apply to schemes receiving either

form of support.

2. A more detailed summary of the results of the consultation

exercise, together with the consultation paper issued in July 2004

are available on the ODPM website.

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