According to the Budget Red Book, ‘the government has considered the PFI and its successor PF2, in light of experience since 2012, and found the model to be inflexible and overly complex’. The Office of Budget Responsibility (OBR) has also ‘identified private finance initiatives as a source of significant fiscal risk to government’.

Speaking in the House of Commons, Chancellor Philip Hammond said that ‘I have never signed off a PFI contract, and I can confirm today that I never will’, decrying the risk they exposed government to and the high cost to the country.

PFI deals, in which public sector work was carried out by private sector contractors, were brought into focus by the collapse of notable government outsourcer Carillion, which raised questions about the long-term viability of such work and the unfavourable terms that were agreed to by governments.

Manish Gupta, Infrastructure Partner at EY, commented on the news, saying: ‘The Chancellor has kept the option of public private partnerships open, while closing down the PF2 route. While there has not been a large pipeline of PF2 projects, the abolition of the initiative was unexpected.

‘With a huge infrastructure backlog in the UK, the Chancellor seems to have closed his options for a potential source of financing, which means the Government will need to commit to substantial public funding to ensure continuity of programmes directly impacted by the announcement, such as A303 upgrade at Stonehenge and the Lower Thames Crossing.’

David Petrie, ICAEW head of corporate finance, said: ‘The failure of some high profile and problematic PFI projects, such as the £335m Royal Liverpool Hospital, has added significantly to the armoury of critics - but not all PFI projects produce bad outcomes. Without it many schools, hospitals and GP’s surgeries would not have been built. Capital investment using these schemes has averaged around £3bn a year - small in comparison to publicly financed government capital investment which currently amounts to £50bn a year.’

Report by James Bunney