Controversial PFI and PF2 contracts, under which private companies provide public services and infrastructure, are to be abolished in the wake of the collapse of construction firm Carillion.
Chancellor Philip Hammond said doing away with the public-private partnerships, which have been heavily criticised for failing to deliver value for money, showed the government was “putting another legacy of Labour behind us”.
The contracts were first introduced by John Major’s Conservative government in the 1990s but were significantly expanded under Tony Blair.
The Treasury said the existing public-private partnership model – where private firms take on the risk of delivering projects in exchange for payments from the state over several decades – were “inflexible and overly complex”.
It also said the Office for Budget Responsibility, the budget watchdog, believed the schemes were a “source of significant fiscal risk to government”.
Civil servants acted to stop watchdog's checks on Carillion projects
Hammond said existing contracts under the PFI and PF2 system will be honoured but no new ones will be signed. Labour has previously indicated it would go further by taking some contracts back under state control.
There are around 700 active PFI and PF2 deals, which the government estimates will cost the taxpayer £199bn by the 2040s.
Forthcoming projects due to be financed by public-private partnerships include the £1.3bn A303 tunnel under Stonehenge and the new Glen Parva prison, announced by justice minister Rory Stewart in June. A Treasury spokesperson said they will still go ahead, but they would be funded “by other means”.
A new centre for best practice will be set up within the Department of Health and Social Care to ensure good management of remaining PFI and PF2s, the Chancellor said.
The government’s oversight of public-private partnerships came in for stinging criticism from MPs and trade unions after the spectacular collapse of outsourcer Carillion, which the National Audit Office estimates is set to cost taxpayers £150m.
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