PFI contract reviews 'to save £1.5bn'

Hospitals, schools and prisons have been built under the PFI scheme

The government will announce more than £1bn worth of savings to be made from changes to Private Finance Initiative (PFI) contracts - deals where private sector firms won contracts to build public services like schools and hospitals, the BBC understands.

In this financial year, £8bn of public money was expected to be spent on PFI deals.

The contracts have been controversial because of the perception that they have sometimes provided poor value for money.

More than 700 hospitals, schools, prisons and other public sector projects have been built under the PFI scheme.

But MPs have expressed concern over the large profits made by some of the firms.

Code of conduct

The Treasury is expected to announce that the government will set up a new unit to be run jointly by the Cabinet Office and the Treasury to work with schools and hospitals, and other public organisations to find the savings of £1.5bn from contracts.

This follows a campaign by MPs, organised by the Conservative MP for Hereford, Jesse Norman, who has previously advised the Chancellor, George Osborne.

Mr Norman said: "I am just delighted. I started the campaign because I was so angry at the waste of money through PFI under Labour.

"But I met with widespread scepticism that savings could be made at all.

"PFI is a really complex issue and the government has taken a very workmanlike approach over the last year to fixing it."

The planned £1.5bn savings will stay in the public sector rather than being used to pay down the deficit.

Pilot projects at Romford Hospital and at three projects at the Ministry of Defence suggested that 5% of savings could be found by looking again at the contracts.

A code of conduct for PFI contractors will be published in the autumn.