Letter from councils and financiers complains of underfunding and severe problems
The government has poured scorn on criticism of its use of the private finance initiative to renew housing.

PFI was attacked this week for being unaffordable and unfair by councils and financiers, who have become so frustrated with PFI that they sent a letter to the government outlining their concerns.

The letter says: "PFI is at a disadvantage compared to other options. PFI underfunds the design solution … as a result, the sector will continue to experience severe problems unless action is taken."

Those involved on both sides of the process have previously said that other stock options such as transfers or arm's-length management organisations receive more attractive funding packages (HT 13 June, page 15).

A government spokeswoman said it was impossible to compare different methods.

She said: "It's like comparing apples and pears. They're not the same thing, as ALMOs have to attain certain inspection standards. There's nothing stopping councils applying for both [methods]." She was unable to confirm whether the PFI policy was being rethought.

PFI is one of the government's three main methods of injecting much-needed funding into the housing sector in order to meet the decent homes target in 2010. Eight pathfinder councils were announced in October 1999 and since then some, including Newham in east London and Sandwell in the West Midlands, have found the process tougher than expected.

The government has come under increased pressure to help in recent months as councils see new homes springing up around England under rival schemes such as arm's-length management organisations.

One council source said: "Most pathfinders are keen to get on with PFI, but a funding mistake was made early on and ministers have been reluctant to say they were wrong."

The problem concerns the rate of interest applied to PFI subsidies. This is not fixed as with other general fund projects, such as hospitals and schools, and means that the subsidy level has fallen along with interest rates. Bidders have had to try to account for this risk, resulting in higher bid prices.

York University professor of housing policy Steve Wilcox said: "PFI in housing is a dodge to get additional resources for long-term projects that otherwise wouldn't get funding. It is an option, but an extremely complicated one and not something I feel very comfortable with."

Public sector union Unison has also attacked PFI, calling for the government to scrap new privately financed projects. It says the majority of current PFI schemes would not have been given the go-ahead under revised government procurement rules and are not cost-effective.

Source

Housing Today