Labour acts quickly to change PFI review rules

The Government yesterday launched a lightning review of the Private Finance Initiative and, as a first step, scrapped the rule that all Whitehall spending projects have to be tested against the PFI before being allowed to proceed.

The review will be conducted by Macolm Bates, chairman of Premier Farnell and the insurance group Pearl, who has been asked to report back to the Paymaster, General Geoffrey Robinson, by 13 June. Business leaders have welcomed the announcement.

Mr Robinson said the aim of the review would be to see how the PFI could best be streamlined and what obstacles there were to bringing projects to fruition.

In the meantime, he said he was kicking over the first obstacle by ending the requirement for universal testing of projects against the PFI. However, Mr Robinson said this did not mean that government departments should expect any increase in their own budgets for capital projects. Labour is sticking to the capital spending controls it inherited from the Conservatives which show a pounds 3bn decline in capital budgets by the end of the decade.

The universal testing rule was introduced two years ago by the former Chancellor, Kenneth Clarke, in an attempt to kick-start the initiative. Since then, however, it has been widely criticised, not least by the Confederation of British Industry, for clogging up the system and delaying approval for important projects, particularly in the health field.

The CBI recommended that projects costing less than pounds 10m should be exempted from this particular requirement.

Mr Robinson said the rule was "a recipe for frustration and delay and works against the concept of prioritisation which we want to build into the process".

So far pounds 11bn worth of contracts have been given the go-ahead under the PFI although a large proportion of that total is accounted for by a handful of projects such as the pounds 3.5bn Channel Tunnel rail link. More than 1,400 projects have been identified by Whitehall departments as PFI candidates. However, only about 10 per cent of these involve investment of more than pounds 10m.

The review will examine the role that could best be played by a new public- private sector taskforce working within the Treasury and reporting direct to the Paymaster General. It will also examine the effectiveness of the Private Finance Panel, the full-time body set up to administer the PFI, and what "generic obstacles" to progress there are.

In its Business Manifesto, Labour set out a 12-point plan for reforming the PFI. Under this, deals already signed would be allowed to proceed but every other potential partnership would be subjected to more rigorous appraisal to avoid long departmental "wish lists" appearing.

Labour also pledged to draw up new guidelines on tendering for partnership projects in consultation with the National Audit Office and the Audit Commission.

The CBI welcomed Mr Robinson's announcement. Charles Cox, chairman of its public procurement and efficiency committee, said: "The abolition of universal testing is a major policy leap for the PFI. We are pleased that the Government has accepted that not all projects are PFI-able. Now the Government must set realistic PFI targets and adequate capital budgets.

Mr Bates was until recently a director of the Private Finance Panel and was deputy managing director of GEC for 12 years until March this year.