Treasury accused of over-confidence as it diverts cash for struggling schemes to stimulate housing

Government plans to divert hundreds of millions of pounds earmarked for PFI projects have raised questions over the future of the 拢2bn emergency bail-out unit set up to help struggling PFI deals just three months ago.

Of the 拢1.5bn package to stimulate the housing market announced this week, nearly 拢1bn will be raised from 鈥渞e-prioritisation and underspend鈥� in other government departments. However, 黑洞社区 understands that the bulk of this money 鈥� at least 拢200m from the schools department and 拢350m from the department for transport 鈥� is funding formerly set aside to bail out struggling PFI schemes.

It emerged this week that without the cash injection the government would have been on course to build just over 45,000 social homes next year, compared to a target of 70,000.

A Treasury spokesperson said: 鈥淪ome departments set aside funds to co-fund PFI projects 鈥� but the market is better than we鈥檇 thought it would be.鈥�

The Treasury Infrastructure Finance Unit (TIFU) was set up in April by Yvette Cooper, chief secretary to the Treasury, to co-fund PFI schemes after last year鈥檚 reductions in bank lending caused a number of major PFI projects to stall. However, the unit has since helped just one project, the 拢3.5bn Manchester waste PFI, and its funding was not needed on the 拢6.2bn M25 project, as lenders have started to come back into the market.

A Treasury spokesperson said the 拢2bn was still available for struggling PFI deals. However, a senior quango source said: 鈥淭here was a political nervousness that nobody seemed to be using the money, which was intended to be the government鈥檚 big rescue package. Departments felt: 鈥榳hy do we need to stump up the money for something we鈥檙e not using?鈥欌�� Instead, the source said, money was being diverted to housing projects able to go ahead more quickly.

There is still concern the re-use of funds earmarked for PFI is based on a too optimistic reading of the market Jeremy Barker, director of corporate finance at KPMG, said: 鈥淚鈥檓 not sure they can be quite as bullish as all that 鈥� it鈥檚 too early. The banks still haven鈥檛 got capacity to do many deals.鈥�

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