Treasury plans to cut £1.5bn from operational PFI contracts

The Treasury is planning to deliver £1.5bn savings across almost 500 operational PFI projects in England, in an efficiency drive that will also inform the new education PFI programme launched today.

Commercial secretary to the Treasury Lord Sassoon announced the plans today following pilot projects in the health and defence sectors, which revealed savings of around 5% of annual payments could be made.

The Efficiency and Reform Group in Cabinet Office, supported by experts from the Treasury and Local Partnerships, will now lead a programme to secure the savings across the public sector. 

The programme will combine ongoing major government supplier renegotiations with savings initiatives being delivered by local contract management teams.

The three main areas where savings will be made are:

• Effective management of contracts, for example, through reducing wasteful energy consumption and through the public sector sharing in savings on insurance
• Making efficient use of space, for example, from sub-letting or mothballing surplus building space.
• Reviewing soft service requirements, so that the public sector does not buy more than it needs when specifying facilities management such as window cleaning and frequency of decoration.

In a statement, the Treasury said: “Lessons from the savings pilots will be factored into this and other future procurements from the very beginning”. 

Chancellor George Osborne said: “We are determined to reform PFI contracts to protect the taxpayer. Today’s announcement, to find savings of £1.5bn, is one of a number of ambitious steps to secure better value for money in PFI contracts. This is just the beginning and we will continue to look for innovative ways to improve the delivery of private finance in the public sector.”

Lord Sassoon, said: “We have identified every opportunity to find savings, tackling wasteful practice and gold plating in PFI contracts. The potential savings will vary from contract to contract, but the results are promising and we will support the wider public sector to find savings in complex contracts.