1.1 As part of the 2010 Spending Review, HM Treasury has introduced a change in budgeting policy affecting the 'PFI credits' system. PFI credits provided central government funding to local authorities to deliver PFI projects.
1.2 Previously, departments wishing to support a programme of local government PFI projects were given a provisional allocation of PFI credits at a Spending Review. PFI credits represented a notional capital sum and were intended to support the capital costs of a project. Departments awarded this funding to individual projects, subject to approval from the Projects Review Group. The funding was then paid to the local authority through a series of grants; these were usually calculated on an annuity basis.
1.3 These grant payments were top-sliced from Revenue Support Grant within the overall local government Resource Departmental Expenditure Limit (RDEL) allocation. This ring-fenced funding gave additional spending power to central departments wishing to deliver PFI projects through local authorities.
1.4 As part the 2010 Spending Review the system of PFI credits was ended. From April 2011 Departments will be required to take on responsibility for making grant payments to local authorities. Previously these payments were made from local government RDEL and were administered by the Department for Communities and Local Government.
1.5 Departments wishing to support new local authority PFI projects will need to prioritise this grant funding from their own RDEL budgets. Departments have been provided with the necessary funding to enable them to continue to provide grant funding to their existing committed local authority projects.
1.6 This change means that, in future, departments will need to consider the economic case of a PFI project and compare this on a like-for-like basis with other calls on their budget. It will also ensure local authorities select the delivery route which provides the best value for money. Both of these points will help to ensure that the limited resources available to departments are focused on spending which provides the best economic return.
1.7 Infrastructure UK will issue updated guidance to replace the current Department of Communities and Local Government PFI Support Guidance.1
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1 http://www.communities.gov.uk/documents/localgovernment/pdf/1350075.pdf