Private Finance Initiatives inquiry

It is unacceptable that after more than 25 years the Treasury still has no data on benefits to show whether the PFI model provides value for money. PF2 is fundamentally the same model as PFI, with some improvements around the transparency of returns to equity investors. Treasury claims that PFI and PF2 provide a range of benefits, including greater certainty over construction costs, improved operational efficiency, and higher quality and well maintained assets, although these benefits can also be achieved with methods other than PFI. PFI and PF2 deals can only be value for money if these claimed benefits exceed the higher financing and other costs of the PFI model. When asked whether the benefits have justified the higher financing costs, the Treasury acknowledged that it is “an impossible question answer” because it does not have the facts needed. The Treasury told us that it considers collecting data on the benefits of PFI to be the responsibility of individual departments. It acknowledged that it has not attempted to quantify the benefits of using PFI, despite telling the previous Committee in 2011 that it would introduce benefits realisation assessment into its value for money guidance, for PFI projects that are underway. Without quantifying the benefits it is impossible to know whether PFI offers value for money, yet the Treasury continues to assert that it does. IPA told us that they have recruited a single member of staff, to look across the entire stock of PFI and PF2 projects and see what data exists, but the exercise will only collate rather than create data, and it is unclear how the Treasury and IPA will use the results. The Treasury wrote to the Committee after the hearing to say that this work will not culminate in a published report or a review. The Department for Education has been collecting data as part of the Priority School Building Project comparing PF2 and conventional public financing, and the Treasury expects this will be completed in summer 2018. Recommendation: The Treasury and IPA should, by April 2019, publish the results of their work in collecting data on the benefits of PFI, and set out what they will do to evaluate the value for money of PFI projects currently in operation in the absence of benefits data. In addition to the Priority School Building Programme (PSBP), the Treasury and IPA should take a representative sample of PFI projects with a public sector comparator, for example roads and hospitals, and undertake in depth analysis of the suggested benefits of PFI. They should publish their findings by December

The Treasury and IPA are not doing enough to identify or address the impact of individual PFI projects on local budgets. Treasury has focused its attention on making changes to the PFI model for the rollout of PF2, rather than addressing continuing problems in the existing stock of over 700 PFI deals. PFI contracts are inherently inflexible, which can have considerable impact on budgets at a local level and in some cases wastes taxpayers’ money. Despite being empty since 2010, the Parklands School in Liverpool continues to cost the Council £4 million a year in PFI costs, and a total of £47 million by the end of the contract, unless a solution can be found. IPA has accepted that this is a “very unfortunate situation”, but asserted that PFI costs in general only represent a small fraction of departmental budgets. However, inflexible PFI costs can create immense pain at a local level. Departments and other public bodies have intervened in some cases where they decided that terminating the PFI contract represented value for money and best protected taxpayers’ money. The Treasury and IPA do not intervene in this way, and do not actively monitor where their intervention might be helpful, for example looking across all PFI contracts for other potential buy-out candidates. There are few signs of the Treasury and IPA adopting a centralised approach to addressing the problems of legacy PFI deals to help local bodies and benefit the taxpayer. For example the Treasury told us it was not specifically looking at the Barts Health NHS Trust’s PFI deal, where the Trust committed to payments of £7 billion over the contract, and paid £143.6 million in 2015 while running a deficit of over £90 million in the same year. The Treasury has taken no action to help local bodies recoup savings in insurance costs that PFI providers owe them, or to identify the scale of this problem. Recommendation: The Treasury should publish how it monitors the impact of PFI at local level, how it shares good practice in contract management, and the circumstances in which it would proactively intervene to help those public bodies struggling with their PFI legacy. Private Finance Initiatives 7

The Treasury’s obvious desire to keep PF2 projects excluded from government debt statistics has created risks to value for money for the taxpayer. For a public body to use PFI and PF2, Treasury rules require it to demonstrate that this financing route provides better value for money than conventional government procurement. However, accounting rules create incentives for public bodies to use PFI for reasons other than value for money, and these incentives remain under PF2. Under national accounting rules, most PFI debt is recorded off balance sheet and excluded from public debt calculations, which is advantageous for the Treasury. The Treasury told us that the UK’s level of public debt played no part in departments’ decision to use PF2. Despite this, Treasury is nonetheless making changes to PF2 to ensure it remains off-balance sheet in the National Accounts. PF2 includes gain- share arrangements which entitle the public sector to a percentage share of any savings made when private PFI companies reduce their costs of borrowing through refinancing, reflecting recommendations of previous Committees. Under the National Accounts rules, the higher the percentage the public sector is entitled to, the more likely PF2 will be recorded on-balance sheet, and count towards UK debt. To avoid this, the Treasury is significantly reducing the amount the public sector will receive if savings are made, and it accepts that this will negatively impact the value for money of PF2. Recommendation: If it is no longer a Treasury requirement to keep PFI contracts off balance sheet for reporting public debt, it should revisit the original plans for PF2, and the subsequent adjustments made to keep it off balance sheet, and ensure the focus is on value for money and not accounting treatment. The Treasury should write to the Committee before any new PF2 deals are signed, demonstrating how the changes introduced under PF2 are not influenced by balance sheet treatment.

PF2 is hardly being used, and IPA hasn’t made clear when its use is appropriate. PFI has been used less over time, falling from a peak of around 60 PFI projects in 2007–08 to no new contracts at all in the last two years. Some departments say this is because of concerns about the cost efficiency and value for money of the model. Since its introduction in 2012, PF2 has only been used for six projects, with a combined capital cost of £920 million. IPA has identified a need for the UK to spend £300 billion on infrastructure by 2020–21, with over 50% of this to be privately financed. The Treasury and IPA were unclear about the scale of the pipeline and money involved. They subsequently wrote to us saying government has plans to invest between £6 billion and £7.8 billion in two new projects using PF2. It is therefore unclear how PF2, and other private finance sources, will meet the needs that the IPA identified. IPA told us that the decline in the use of PF2 is in part because government is getting better at designing and constructing projects on time and to budget, and therefore the hurdle for PF2 projects to demonstrate better value for money than public sector procurement is higher than it was for PFI. It is unclear which projects are suitable for PF2 investment, if the benefits of transferring the risks of delivering projects have fallen and only a small number of low-risk projects are being considered. If the public sector can borrow more cheaply as well as manage the risk of project overruns and delays more effectively than before, then the future scope of PF2 investment appears limited. 8 Private Finance Initiatives Recommendation: The Treasury and IPA should set out more clearly the nature and level of risk they consider appropriate to transfer to the private sector in PF2 projects, and outline a clearer view of how it expects public bodies to use PF2 and other types of private finance in future. Private Finance Initiatives 9 1 The Impact of the PFI Legacy

The government has been using the Private Finance Initiative (PFI) and its successor PF2 for over 25 years to build public infrastructure assets (particularly schools, hospitals and roads) and deliver services to the public. In PFI deals the public sector enters into a contract with a private company specifically created to deliver the asset. The private company raises finance from equity investors and borrowing. Once the asset is constructed and available for use, the taxpayer makes annual payments to the private company over the length of the contract, typically 25 to 30 years. These annual payments cover capital and interest repayments, shareholder dividends, asset maintenance, and in some cases other services like cleaning.

The IPA told us that it had recruited a single member of staff, “pretty much on a full- time basis”, to identify what data on the benefits of PFI exists across all 700 projects in the PFI portfolio.22 This exercise will only collate rather than create data. The Treasury and IPA told us that this is on-going analysis to inform future investment decisions, which will not result in a report.23 IPA told us that the other area it will focus on will be schools and hospitals nearing the end of their PFI contracts and comparing them against publicly– financed assets to see if the whole life benefits of PFI are materialising, for example how well maintained they are.24 It is entirely possible to collect data on benefits and undertake these exercises: the Department for Education is already collecting data, as part of the Priority School Building Programme, comparing the value for money of privately 11 Q22 12 Q45 13 Committee of Public Accounts, Lessons from PFI and other projects, 44th Report of Session 2010–12, HC 1201, 1 September 2011, oral evidence Q 200 14 Q23 15 Q23 16 Qq 45, 50 17 Q49 18 Q51 19 Qq 59, 63 20 C&AG’s Report, para 1.24 21 Q51 22 Q46 23 Correspondence with HM Treasury, 11 April 2018 24 Q48 Private Finance Initiatives 11 financed schools on PF2 contracts against public financed ones.25 The Treasury told us that the Department for Education’s review was not initiated by either the IPA or HMT, and expects it will be completed in the summer of 2018.26 There Returns to PFI investors

The financing structure of a PFI contract typically consists of 90% debt, in the form of bank loans, and 10% equity provided by investors.27 Private investors require a return on their investments to compensate for risks transferred to them under a PFI deal. Investors fall into two categories: primary investors and secondary investors. Primary investors usually invest during the construction stage of a project, and typically sell after construction to secondary investors who want to invest in an operational project, because the risk of project failure is much lower after the asset has been built.28 In some PFI deals equity investors have been able to generate high returns, particularly when equity is sold after construction.29 Shareholders in the M25 PFI deal, for example, made estimated returns over an eight-year period equivalent to 31% a year when selling their stake in the project.30 This is more than double the typical 12–15% returns investors can expect to receive over the life of a PFI project.31 In written evidence, Professor Dexter Whitfeld, Director of the European Services Strategy Unit, told us that returns to investors in excess of 25% are not uncommon in PFI projects. His analysis of 118 transactions that involved the sale of equity revealed an average return to investors of 28.7%.32 Equity returns this large may reflect errors by departments in their pricing of risk transfer to the private sector at the time they entered into the contracts.33 We examined equity returns in 2010 and concluded that excessive gains may indicate overpriced PFI contracts.34

The previous Committee suspected in 2011 that initial investors were able to make excessive profits from selling PFI shares, but lacked the information to be sure. It believed that there was a strong case for sharing these gains with the government. The Committee recommended that the Treasury should introduce arrangements for sharing in investors’ gains.35 The Treasury partially accepted this recommendation saying that consideration would be given to the sharing of gains from PFI equity investors.36 However, the Treasury told us that it had decided against introducing sharing arrangements, despite other countries using such arrangements.37 Instead the Treasury sought to address the problem by introducing equity funding competitions.38 These competitions are intended to drive down the price of equity by creating competitive tension between bidders seeking to 25 Q24 26 Qq 24, 84, 88 27 C&AG’s Report, figure 1 28 C&AG’s Report, para 3.12 29 C&AG’s Report, para 3.12 30 C&AG’s Report, para 3.12 31 Professor Dexter Whitfield (PFI0001) para 1.1 32 Professor Dexter Whitfield (PFI0001) para 1.1 33 C&AG’s Report, para 3.12 34 Committee of Public Accounts, Financing PFI projects in the credit crisis and the Treasury’s response, 9th Report of Session 2010–11, HC 553, 9 December 2010 35 Committee of Public Accounts, Financing PFI projects in the credit crisis and the Treasury’s response, 9th Report of Session 2010–11, HC 553, 9 December 2010 36 HM Treasury, Government responses on the Twenty Eighth and the Forty Second to the Forty Fifth Reports from the Committee of Public Accounts, Session 2010–12, Cm 8212, October 2011 37 Qq 71–75 38 Qq 29, 76 12 Private Finance Initiatives invest in a portion of the project equity.39 Government has only used an equity funding competition in one PF2 deal to date, and while this successfully resulted in lowering the returns to equity investors, the approach is relatively untested.40 Moreover, the changes only affect future PF2 deals, and do nothing about excessive returns investors can make on the historic stock of over 700 projects. The public sector will also invest as minority equity stake in all future PF2 deals, which should increase transparency to these returns as the public sector will have a seat on the PFI provider’s Board.41

We were concerned to hear of high profile cases where the equity element of PFI contracts have been sold to offshore investment funds that pay little or no corporation tax in the UK, which we first drew to the Treasury’s attention in 2011.42 The previous Committee highlighted the potential for tax avoidance through the sale of equity in the secondary market to investors non-domiciled in the UK.43 The Treasury told us that, while the vast majority of PFI companies are UK tax domiciled and pay corporation tax, public procurement rules prevent discrimination against non-UK domiciled companies and investors.44 As a result, the Treasury cannot control where secondary PFI investors are located, and can only take action if there is evidence of inappropriate tax evasion.45 Professor Whitfield told us that offshore infrastructure funds owned around half of the equity in PFI and PF2 projects, with the five largest offshore infrastructure funds making profits of £2.9 billion in the 5 year period between 2001–2017, and paying less than 1% in tax on their PFI profits.46 The Treasury’s rules require departments to undertake a value for money assessment of a PFI or PF2 deal, and the amount of corporation tax a private company is expected to pay is one component of this. The higher the amount that the company is expected to pay, the more likely that the PFI option will be judged value for money. These tax adjustments have historically been criticised for being too high.47 If the calculations do not reflect the reality that offshore investors dominate the secondary market, then the estimated benefits will be overstated.48 We were concerned that this could lead to an incorrect conclusion that the PFI or PF2 deal offers better value than the project being financed by the public sector.49 Consequences of PFI at local levels

The Treasury and IPA have focussed on introducing PF2 and making changes to the private finance model as part of this, rather than looking at the much larger historic stock of 700 PFI projects, where the biggest problems persist.50 The Treasury accepted that the success of PFI projects has been a “mixed record”, and told us that one of the main problems with PFI has been the “rigidity and inflexibility” of contracts and their associated 39 Qq 29, 76 40 C&AG’s report, para 3.13 41 Q122 42 Q 26 43 Committee of Public Accounts, Equity Investment in privately financed projects, 81st Report of Session 2010–12, HC 1846, 2 May 2012 44 Qq 26–27 45 Q27 46 Professor Dexter Whitfield (PFI0001) para 2.2 and 3.1 47 C&AG’s Report, para 1.31, C&AG’s Report, Review of the VFM assessment process for PFI, October 2013, para 3.30–3.35 and Figure 8 48 C&AG’s Report, para 1.31 49 Public Accounts Committee, Equity Investment in privately financed projects, 81st Report of Session 2010–12, HC 1846, 2 May 2012, para 12 50 Q89 Private Finance Initiatives 13 long term costs.51 For example, Liverpool City Council is currently paying around £4 million each year in PFI fees for Parklands High School, which has been empty since 2014. The Council is contracted to pay a further £47 million until 2028.52 IPA told us that this is a “very unfortunate situation” but asserted that PFI expenditure only represents a very small percentage of departmental budgets.53 But inflexible PFI costs can create immense pain at a local level. For example, the National Audit Office reported in 2010 that for one Health Trust, PFI payments represented more than 20% of turnover. Pressures on public finances have increased since then, so this figure could be even higher now, given PFI payments increase with inflation.54

The Treasury told us that unless contracts can be terminated on a voluntary basis, which does not always provide value for money, or renegotiated, then there is not always a solution to the problem of large payments under inflexible PFI contracts.55 The Treasury told us that this is especially true in older contracts (particularly those signed before 2000), where public bodies have no other choice but to pay for an asset even if it is not being used.56 Public bodies have terminated contracts where they considered it value for money to do so. In 2017, for example, the Greater Manchester Waste Disposal Authority terminated its recycling and waste management PFI contract.57 In 2014 the Northumbria Healthcare NHS Foundation Trust terminated its PFI contract for Hexham hospital, although the IPA has expressed significant doubts about the value for money of buying out that contract.58

The Treasury told us that it is the combined responsibility of the Treasury, IPA and the procuring department to ensure that demand forecasts are reliable to reduce the likelihood that a new school or hospital is left empty part way through a PFI contract, as in the case of Parklands School.59 The Treasury and IPA do not actively monitor struggling PFI deals to assess whether intervention might be helpful.60 The Treasury explained that it only becomes involved when departments present a proposal to buy out a PFI contract, or to renegotiate it in a way that was novel or contentious.61 The Treasury and IPA do not, for example, look across the entire stock of PFI contracts to see if there are any contracts that would be suitable for voluntary termination.62 For example the Treasury told us it was not specifically looking at the Barts Health NHS Trust’s PFI deal, where the final cost of the project will be £7 billion over the life of the contract, with the hospital trust making payments until 2049. The Trust paid £143.6 million in PFI payments in 2015 while running a deficit of over £90 million in the same period, causing significant budgetary pressures.63

Another problem currently affecting many public bodies relates to PFI insurance. PFI contracts require the cost of insurance to be agreed at the start of the contract. Public bodies then are entitled to share in any savings should the cost of insurance fall. However 51 Qq 23, 89 52 Qq 92–93, C&AG’s Report, Figure 1.21 53 Qq 89, 90, 92–93 54 C&AG’s Report, para 2.5–2.6 55 Q 93 56 Qq 92, 93 57 Qq 89, 112 58 Q 109, C&AG’s Report, para 2.20 59 Q 95 60 Qq 112–120 61 Qq 111, 117–118 62 Qq 112–113 63 Qq 99, 101–104 14 Private Finance Initiatives there are examples whereby private companies are deliberately withholding money owed to public bodies following a fall in insurance costs. We questioned the IPA on how they are addressing this problem and they told us it was undertaking a review of the PF2 standard contract guidance looking specifically at the costs of insurance.64 This review fails to address problems being faced in existing PFI contracts, and the full extent of this issue remains unquantified. It remains unclear what the Treasury is doing to help local bodies recoup insurance cost savings PFI providers owe them.65 64 Q 128, C&AG’s report, para 2.10 65 Q 128 Private Finance Initiatives 15 2 Decisions about future investments and PF2

In 2012, the Treasury replaced the PFI model with PF2 as part of efforts to address some of the previous Committee’s criticisms of PFI, including inflexibility and lack of transparency. PF2 is not fundamentally different to the PFI model. Treasury told us that it considered PF2 to be a valuable means of delivering public assets and services, but only when it is used for the right projects with the right type of risks. It told us that it was being more selective in its use of PF2 to ensure that projects represented value for money.66 So far only six PF2 projects have been commissioned, with another two projects in the pipeline.67

The public sector can borrow more cheaply than the private sector.68 According to Treasury rules, any decision to invest using PFI or PF2 needs to be supported by an assessment demonstrating that PFI provides better value for money than conventional public sector procurement.69 Prior to 2012, this assessment comprised of a qualitative and quantitative component, however, following a number of criticisms (such as adjustments favouring PFI that lacked an empirical basis) the Treasury withdrew the quantitative model and guidance.70 The Treasury told us that for PF2 deals it would work with the IPA and relevant departments to assess whether a deal meets the criteria set out in the government’s Green Book, including assessing the reliability of demand forecasts, and the affordability of the proposed deal.71

Aside from value for money assessments, there remain budgeting and accounting incentives that encourage the use of PFI in preference to other procurement approaches, and are unaddressed under the new PF2 model. In 2012 the previous Committee found that PFI projects rarely scored against scarce departmental budgets, giving departments an incentive to use PFI to provide public assets and services, particularly in times of public expenditure constraints.72 The UK produces National Accounts, recording and describing economic activity in the UK, which include important statistics such as Gross Domestic Product (GDP) and the UK’s headline debt statistics such as Public Sector Net Debt (PSND). The National Accounts are produced using internationally agreed rules. Under these rules, most PFI debt is not recorded on the government balance sheet and is excluded from calculations of the level of debt within the public sector (often described as “off balance sheet”), which is advantageous to the Treasury.73 Departmental budgets are set using the same principles as the National Accounts. When departments use PFI, the payments are spread over the life of the contract, with no large upfront payment as there would be if government borrowing was used. This is beneficial for departments that have limited capital budgets but, for example, need to build a school or a hospital, and departments have said that they were only able to build certain assets through PFI as there was no other finance available.74 The National Accounts are different to the Whole 66 Q 123 67 Qq 39, 127 68 Q 121 69 Q 30; C&AG’s Report, para 1.27 70 Q 23; C&AG’s Report, para 1.32 71 Qq 95, 123 72 Committee of Public Accounts, Equity Investment in privately financed projects, 81st report of Session 2010–12, HC 1846, 2 May 2012 73 Qq 56, 131–132 74 C&AG’s Report, para 1.14 16 Private Finance Initiatives of Government Accounts (WGA), which consolidate all financial statements across the public sector and are produced using a different set of accounting rules that recognise most PFI projects as on the government balance sheet.75

The Treasury told us that PFI and PF2 is only used if it demonstrates value for money compared to conventional public sector procurement, and that the UK’s level of debt and the balance sheet treatment had no bearing on a decision to use PFI and PF2.76 Despite this, Treasury is making changes to PF2 to ensure it remains off balance sheet in the National Accounts. For example, private companies can reduce costs and make gains by refinancing debt if the cost of borrowing has fallen since the PFI deal was originally signed. Previous Committees emphasised the need for the taxpayer to share in these type of gains, saying that a refinancing can greatly increase the returns to the private sector and change the balance of risks and rewards.77 In response, the Treasury established “gain– share arrangements” allowing public bodies to take 50% of any savings made by private companies in refinancing the PFI or PF2 debt.78 Under the National Accounts rules, the higher the percentage the public sector is entitled to, the more likely PF2 will be recorded on the balance sheet and count towards UK debt. In 2016, Eurostat, the statistical office of the European Union, made changes to the rules governing the National Accounts, meaning that the PF2 model would be recorded on balance sheet and count towards UK public debt.79 To avoid this, the Treasury is significantly reducing the percentage that the public sector will receive if savings are made, from 50% to just 33%.80 Ministerial submissions have stated that the Treasury has recognised that this change will have a negative impact on value for money.81 Use of Private Finance 2 (PF2)

The public sector has used PFI less and less over time, falling from a peak of over 60 projects in 2007–08 to no new PF2 contracts at all in the last two years.82 IPA told us there are other ways of involving the private sector in infrastructure investment, and over the last five years the government has secured more infrastructure investment using these other methods than through PF2.83

Since its launch in 2012, only 6 projects have used PF2: the Priority School Building Programme (PSBP), which will build 46 schools in five batches, and the Midland Metropolitan Hospital.84 The projects have capital costs of £623 million and £297 million respectively.85 The Treasury and IPA were unclear in evidence to us about the scale of the pipeline of PF2 projects, or the money involved. In subsequent written evidence, the Treasury told us that there are only two projects that are expected to be financed by PF2: an upgrade of the A303 Stonehenge tunnel and the approach roads to the Lower Thames 75 C&AG’s Report, para 1.16 76 Qq 57, 58 77 Committee of Public Accounts, The Refinancing of the Fazakerley PFI Prison Contract, 13th Report of Session 2000–01, HC 955, 4 July 2001, para 5; Committee of Public Accounts, Lessons from PFI and other projects, 44th Report of Session 2010–12, HC 1201, 1 September 2011, para 3 78 C&AG’s Report, para 3.18 79 C&AG’s Report, para 3.18 80 C&AG’s Report, para 3.18 81 C&AG’s Report, para 3.18 82 Q 32; C&AG’s Report, Figure 6 83 Q 134, C&AG’s Report, para 3.22 84 C&AG’s report, para 3.19 85 C&AG’s Report, para 3.19 Private Finance Initiatives 17 Crossing.86 The Treasury expects investment in the two projects will amount to between £6 billion and £7.8 billion.87 When questioned on the future use of PF2, the Treasury said that PF2 will only be used in a “handful” of cases over the next three years, but were unclear on the number and cost of future projects.88 The Treasury told us that it now views PF2 as a “useful tool” in a range of options for financing public infrastructure, but that it will use it in a more focused way. It confirmed that it would not return to the levels of investment seen at the height of PFI, which saw investment peak at £8.6 billion in 2007–08.89 Some departments have said that their reduced use of PFI and PF2 results from concerns about cost efficiency and value for money.90 The Treasury and IPA told us that PF2 is being used less because the public sector is now better at managing project risk, thereby reducing the probability that publicly funded projects with be delayed and run over budget.91

The Treasury told us that the outlook for investment in infrastructure is very ambitious.92 In 2016, the IPA identified a need to invest in £300 billion of infrastructure by 2020–21, and expects the private sector to finance half.93 On current projections PF2 looks likely to provide a relatively small role in achieving these aims, and it appears unclear how far PF2, and similarly other private financing, will help the UK meet these financing needs.94

We asked the Treasury when PF2 investment would be suitable, if the public sector is now much better at managing risk and can borrow more cheaply. The Treasury told us that the transfer of a project’s risk from the public sector to the private sector was one of the main benefits of the PFI model. But it accepted that risks should only be transferred to those who are able to manage them better than in the public sector.95 Some assets are more complex, and therefore risky, to build than others. Around two-thirds of all current PFI contracts involve “accommodation”, (for example schools) which is considered to involve relatively low construction risk.96 The Treasury told us that it considers PF2 to be a specialist tool, appropriate in a relatively narrow set of circumstances, and if the risk transfer is not suitable, then PF2 is not the right structure for investment. As such, large, complex projects such as HS2 and Crossrail are now being funded publicly.97 The IPA told us that only projects where the private sector is best placed to identify and manage risks should be considered for PF2, and that projects that are large, with too much complexity and technology risk (such as IT projects) are unsuitable for PF2.98 If PF2 is more targeted than PFI, and the public sector is better at managing projects as well as being able to borrow more cheaply, it becomes more difficult to justify using PF2 because there is a smaller range of projects where the private sector is better placed to manage risk, and the future scope for PF2 to contribute to the UK’s infrastructure investment needs looks limited.99 86 Qq 34, 39 87 Correspondence with HM Treasury, 11 April 2018 88 Qq 31–41 89 Qq 23, 30–31 90 C&AG’s Report, para 2.3 91 Q41 92 Q 132 93 C&AG’s report, para 1.2 94 Qq 41, 123, 130, 132 95 Qq 22, 31, 80 96 C&AG’s Report, para 1.7 97 Q 121 98 Q120 99 Qq 41, 121 18 Private Finance Initiatives