The consultation, carried out between July and October 2004, sought
the views of local authorities and other interested parties on a
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
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
* 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.