At the moment, the subsidy is tied to Bank of England interest rates. Rates – and therefore subsidies – could fluctuate dramatically over the 30-year life of a PFI deal, causing problems for councils.
The Office of the Deputy Prime Minister hopes fixed level subsidies – laid out in a consultation paper published on Tuesday – will encourage more councils to use PFI to get their homes up to the 2010 decent homes target. The government has set aside £1.45bn to spend on PFI subsidies until 2006. Typically, a scheme would get something like the £40m that is to be paid to Manchester's Plymouth Grove over the next 30 years. The fixed subsidy would be known as a PFI allowance.
But some finance experts said it would take more to encourage councils to go for PFI rather than the other options for meeting the decency target: stock transfer or an arm's-length management organisation. A major disadvantage of PFI is that negotiations can be arduous. Of the nine PFI pathfinders set up in 1999, only two – Manchester and Islington – have signed contracts so far.
Ben Denton, senior director of housing finance and regeneration at consultant ABROS, said: "The PFI allowance is precisely what we asked for and it is really positive that the ODPM has taken on board what we have said. It helps deal with an issue where councils were concerned before and introduces certainty. However, PFI remains a complicated process and this proposed change alone will not open the floodgates to many other authorities getting involved."
Denton added that the government's efforts to boost the popularity of PFI should focus on procurement and the stock condition survey. He said that, combined, these elements could cost councils between £500,000 and £1m.
The government has promised that any change will be applied retrospectively to those authorities that have signed deals.
It is understood that Islington council – which reached contractual close on 12 May – feels that the change will not be a problem.
Source
Housing Today
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