The Ryrie Rules were superseded by the Private Finance Initiative (PFI) announced by Norman Lamont, in his 1992 Autumn Statement:
I said in my Mansion House speech that I was examining ways to increase the scope for private financing of capital projects. Obviously, the interests of the taxpayer have to be protected, but I also want to ensure that sensible investment decisions are taken whenever the opportunity arises. I am now able to announce three significant developments.
In the past, the Government have been prepared to give the go-ahead to private projects only after comparing them with a similar project in the public sector. This has applied, whether or not there was any prospect of the project ever being carried out in the public sector. I have decided to scrap this rule. In future, any privately financed project which can be operated profitably will be allowed to proceed. […] Secondly, the Government have too often in the past treated proposed projects as either wholly private or wholly public. In future, the Government will actively encourage joint ventures with the private sector, where these involve a sensible transfer of risk to the private sector. […]
Thirdly, we will allow greater use of leasing where it offers good value for money. As long as it can be shown that the risk stays with the private sector, public organisations will be able to enter into operating lease agreements, with only the lease payments counting as expenditure and without their capital budgets being cut.7
The aim of introducing the PFI was to achieve closer partnerships between the public and private sectors at both central government and local authority levels. The guiding principles of the PFI are similar to those underlying the Ryrie Rules: ventures established under the PFI need to achieve a genuine transfer of risk to the private sector and secure value for money in the use of public resources. The new policy had a limited impact in the early months and, when he became Chancellor, Kenneth Clarke decided it needed further impetus. In autumn 1993, he announced the creation of a Private Finance Panel (PFP) whose role was:
• to encourage the greater participation in the initiative by both public and private sectors;
• to stimulate new ideas;
• to identify new areas of public sector activity where the private sector could get involved; and
• to seek solutions to any problems that might impede progress.
In a speech to the CBI Conference on 8 November 1994 Mr Clarke reiterated the two guiding principles of the PFI:8
• the private sector must genuinely assume risk without the guarantee by the taxpayer against loss; and
• value for money must be demonstrated for any expenditure by the public sector.
The Chancellor told the CBI conference that "private sector finance would be the main source of growth" in public investment projects and that the Treasury would not approve capital projects unless private finance options had been explored. Mr Clarke also stressed that for projects conducted under the PFI no target rates of return or profit caps existed or would be introduced. He made it clear that he wanted to maximise the scope for and use of private finance, reserving public capital provision for those areas where private finance was considered inappropriate or could not be expected to provide value for money.
In the 1995 Budget, the Chancellor announced another re-launch of the PFI and a £9.4 billion list of "priority" projects.9 Michael Jack, then Financial Secretary, sought to allay widespread scepticism as to the ability of the government to proceed with PFI contracts and the readiness of the private sector to participate. He published a new PFI handbook, Private Opportunity Public Benefit, progressing the Private Finance Initiative10 drawing together the lessons that had been learnt from some key PFI projects. He also pledged to eliminate "unnecessary bureaucracy" and to promote a more favourable climate for the initiative across Whitehall.
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7 HC Deb 12 November 1992 vol 213 c998
8 HM Treasury, Private Finance: Overview of progress, News release 118/94, 8 November 1994
9 HM Treasury, Financial Statement and Budget Report, HC 30 1995/96, November 1995
10 HM Treasury/PFP, Private Opportunity Public Benefit, progressing the Private Finance Initiative, November 1995.