explore partnership approaches for the provision of key public
services. The move came as local government minister Nick Raynsford
introduced a new system for calculating government support for
The simpler revenue support system for PFI schemes will be easier for
local authorities to understand as they develop proposals for their
schemes. The changes should help streamline the process from
proposal to delivery of key public services.
Announcing the introduction of the new system, Mr Raynsford said:
'The private finance initiative is making a substantial contribution
to the delivery of better local services, with some 188 projects
already endorsed. From 1 April, we introduced a simplified formula
for calculating the government grant for approved PFI schemes. The
move underlines our continuing commitment to this kind of partnership
between local authorities and the private sector.'
'It is a further example of our policy of reducing regulation and
complexity, which was a key theme of last December's white paper
Strong Local Leadership - Quality Public Services. I am convinced
that the simpler PFI grant formula will be welcomed by all local
authorities - both those that are already receiving revenue support
and those applying for it in the future.'
Revenue support is given by a 'special grant', which starts when PFI
schemes become operational. The 'special grant' covers a significant
part of the regular charges authorities have to pay throughout the
PFI scheme's contract.
The amount of this 'special grant' is calculated by formula. The new
formula underpinning the modified revenue support system for PFI
schemes replaces a formula devised in 1998. The formula changes give
the system greater flexibility with timing issues, making the it
easier to apply to the different timetables for individual PFI
The government introduced the new formula after consultation with all
local authorities and interested parties. Following a positive
response, the changes to the revenue support system for PFI schemes
was published in the Special Grant Report (No.90) [HC 611].
Parliament has now approved this report, and the formula will be used
for all local authority PFI schemes eligible to receive revenue
support from 1 April 2002 onwards.
1. Under the PFI the public sector does
not buy assets (buildings, roads, etc), but rather pays for the use
of assets held by the private sector. When local authorities borrow
to buy assets outright they receive central government support to
meet most of the costs of servicing the debt. To encourage
authorities to explore PFI as an alternative to traditional
procurement, support is given for the major part of the charges for
approved PFI schemes.
2. The system used for the last four years is based on an estimate
of the capital cost of a scheme (a value expressed as 'PFI credits').
Grant support is paid broadly as if that amount were a loan. None of
this changes under the new system. However there are two main
3. The first relates to the calculation of the total value of the
payments to be made during what might be a long contract. Originally
based on the date of contract signature, this was found to put at a
potential disadvantage schemes where there was a longer than normal
period between that date and the start of payments to the contractor.
A complex means of compensation had to be introduced. Under the new
system the calculation will be based on the date when payments to the
contractor begin. This puts all projects on the same footing in a
much simpler and more accurate way.
4. The support given for a project reduces slightly each year. The
other main change relates to the way in which this reduction is
calculated. Again a formula-based approach has been replaced by a
more transparent and flexible method. In addition the opportunity has
been taken to introduce a change which allows payments to be made as
soon as the scheme is operational, even if that is earlier than
5. No authorities lose out financially and some get very slightly
more grant this way. Everyone benefits from the greater simplicity of