• Government says it will no longer procure “off balance sheet” PFI-type capital projects
  • This could be a blow for NHS organisations seeking significant investment

The government has launched a review of private financing options for public infrastructure and said it will no longer procure PFI-type projects that are “off-balance sheet”.

In a consultation published today, the Treasury says it has “recognised the lessons learned” from the private finance initiative, “including the need for greater transparency”.

This could be a blow for NHS organisations seeking significant capital investment, as it suggests future projects are more likely to be on-balance sheet and score against constrained capital spending limits.

One of the main attractions of PFI and its successor PF2 was that projects did not score against capital spending limits and therefore did not count towards the national debt. But new European accounting guidance introduced earlier this decade made it more difficult to secure this accounting treatment in the national accounts.

HSJ has asked for clarification as to whether the government is ruling out all forms of off-balance sheet financing in future, as the consultation document appears to refer only to off-balance sheet financing that shares the characteristics of PFI or PF2.

It is understood there are still various models being discussed within and around the NHS which seek to keep projects off-balance sheet.

The document published today says: “The government will not be seeking a like-for-like replacement for either PFI or PF2 and will therefore no longer procure off-balance sheet projects using a design, build, finance and maintain/operate contracting structure where the taxpayer directly pays for the project.

“This supports the government’s wider agenda of improving the management of the public sector balance sheet and ensuring value for money for the taxpayer…

“The government continues to support a wide range of vehicles for delivering private investment into consumer-funded infrastructure… Private finance could still bring benefits to government-funded infrastructure, for example in risk management, project discipline and innovation, so the government is open to exploring new ideas for using private capital in government projects, including through on-balance sheet structures.

“However, the government recognises the lessons learned from the experience of PFI and PF2 including the need for greater transparency: new ideas must be able to demonstrate that the benefits brought by private capital outweigh the additional cost to the taxpayer of using it.”

In his budget speech last year, chancellor Philip Hammond announced there would be no more PFI and PF2 deals, saying there was “compelling evidence” they do not deliver value for taxpayers or genuinely transfer risk to the private sector.

There has since been huge uncertainty and concern about future capital investment in the NHS estate.

Article amended on 14 March to clarify that the accounting guidance updated earlier this decade was from Eurostat, an EU body. Eurostat sets the budgeting rules that HMT uses for its national accounts.