Osborne Said to Save 2.5 Billion Pounds on PFI-Funded Services

U.K. Chancellor of the Exchequer George Osborne will announce an overhaul of privately financed state services with the aim of deepening cuts to government running costs, said people familiar with the plan.

Osborne will tell Parliament tomorrow that about 1.5 billion pounds ($2.4 billion) have been saved so far and another 1 billion pounds is expected from the changes, said the people, who declined to be named because the plans aren’t yet public. The Private Finance Initiative model will be replaced with a system that aims to speed up the tendering process and provide more clarity for taxpayers.

It marks the conclusion of a year-long process to overhaul a system that has come under attack from lawmakers for not serving the best interest of taxpayers. Osborne will spell out the proposals when he presents his autumn statement to Parliament tomorrow.

The Public Accounts Committee of the House of Commons said on May 2 that the government should scale back the use of PFI when the only benefit of using it is to keep debt off the government’s balance sheet. More than 700 projects have been financed through PFI in the last two decades, which the cross-party panel said had generated too much profit for investors and restricted competition.

Britain has liabilities of 40 billion pounds from PFI projects used to build and run hospitals, schools, prisons, courts and roads.

The PF2 model will give taxpayers a share in new projects, giving the public a minority stake in ventures and a representative on their governing boards, said the people. Tender times will be cut to a maximum of 18 months from as long as five years and the public will be able to make use of any facilities without extra charges.

Profit Disclosure

Osborne will say the new system will require companies to disclose how much profit they make and give them better access to information about projects, the people said.

It will seek money from investors rather than allowing them to use debt to finance deals, with the aim of attracting pension funds and institutional investors, the people said. Osborne will also set a cap on off-balance sheet charges, they said.

The Treasury found savings of 615 million pounds by making better use of building space, cutting energy use and renting out facilities to private users, the people said. It saved a further 630 million by cutting back on management consultants and other external advisers.