£13bn plan to rescue London PFI Projects

projects to build new prisons, schools and homes in London are to be rescued by the Government after the credit crunch threatened their completion.

Treasury Chief Secretary Yvette Cooper today confirmed that up to £13billion of taxpayers' cash will be used to salvage a string of privately financed infrastructure schemes threatened by the lending squeeze. Among the PFI deals in danger are a high-security prison in Belmarsh, schools in Greenwich, housing developments in Lambeth and street lighting projects across Croydon and Lewisham.

In an announcement to Parliament, Ms Cooper said that the projects were needed as part of the Government's plan to spend public cash to create jobs in the downturn. She said: "We need to get these important infrastructure projects moving quickly to support jobs right now. That's why Government is stepping in to accelerate the process and safeguard these major projects in the face of financial market problems."

A new unit in the Treasury, run as a private limited company to get round Treasury lending rules, will lend to projects at market rates.

There are 110 projects with a capital value of £13 billion currently being tendered to the private sector under PFI schemes but the Treasury hopes that only £2 billion will be needed this year. The sums spent could increase over time if bank lending remains constrained.

But shadow chancellor George Osborne said that the injection of taxpayers' cash looked like "applying a sticking plaster to Labour's failed PFI model", and Liberal Democrat treasury spokesman Vince Cable dismissed it as "a ludicrous charade" adding that it would be better "simply to accept that these are core public investment commitments".

Jeremy Barker, a director for global infrastructure at KPMG, said the idea "is potentially at odds with the philosophy underlying the PFI".