PFI, which sees the public sector partner with private companies to fund and operate long-term infrastructure projects, will be replaced with Private Finance 2 (PF2).
The new scheme will include a greater role for the public sector in every project, with the taxpayer having seat on the board of every project company and a share of any financial returns. The original PFI scheme, originally introduced in 1992 by the John Major government, is used for everything from hospital construction to providing aircraft for the RAF. But many of the deals with private firms have been criticised for a lack of transparency and substantial cost overruns.
To combat these criticisms PF2 will include encouragements to attract more money from long-term investors such as pension funds, in an attempt to stop partnerships collapsing due to unmanageable debts. In addition the total cost for PF2 deals will be published and all procurement must be completed within 18 months or the public sector body will lose the funding.
The chancellor will also claim that he has saved £1.5bn from the cost of existing PFI schemes in the last 18 months, thanks to increasing the occupancy rate of government buildings and reducing energy use.