Raid on PFI cash casts doubt on £2bn rescue fund

Government plans to divert hundreds of millions of pounds earmarked for PFI projects have raised questions over the future of the £2bn emergency bail-out unit set up to help struggling PFI deals just three months ago.

Of the £1.5bn package to stimulate the housing market announced this week, nearly £1bn will be raised from “re-prioritisation and underspend” in other government departments. However, Building understands that the bulk of this money – at least £200m from the schools department and £350m from the department for transport – is funding formerly set aside to bail out struggling PFI schemes.

It emerged this week that without the cash injection the government would have been on course to build just over 45,000 social homes next year, compared to a target of 70,000.

A Treasury spokesperson said: “Some departments set aside funds to co-fund PFI projects – but the market is better than we’d thought it would be.”

The Treasury Infrastructure Finance Unit (TIFU) was set up in April by Yvette Cooper, chief secretary to the Treasury, to co-fund PFI schemes after last year’s reductions in bank lending caused a number of major PFI projects to stall. However, the unit has since helped just one project, the £3.5bn Manchester waste PFI, and its funding was not needed on the £6.2bn M25 project, as lenders have started to come back into the market.

A Treasury spokesperson said the £2bn was still available for struggling PFI deals. However, a senior quango source said: “There was a political nervousness that nobody seemed to be using the money, which was intended to be the government’s big rescue package. Departments felt: ‘why do we need to stump up the money for something we’re not using?’” Instead, the source said, money was being diverted to housing projects able to go ahead more quickly.

There is still concern the re-use of funds earmarked for PFI is based on a too optimistic reading of the market Jeremy Barker, director of corporate finance at KPMG, said: “I’m not sure they can be quite as bullish as all that – it’s too early. The banks still haven’t got capacity to do many deals.”