Source · Select Committees · Public Accounts Committee
Recommendation 2
2
Accepted
Evaluate alternate infrastructure financing models to identify preferred options for project types
Conclusion
The Treasury has not identified which financing models represent value for money for different types of infrastructure assets. A range of financing models are currently in use for delivering public infrastructure including but not limited to: Contracts for Difference; Regulated Asset Base models; and Public Private Partnerships, of which the extensively used Private Finance Initiative (PFI) is an example. To achieve value for money, it is essential that the additional costs of private finance are justified by the benefits offered. The NAO has previously reported 3 that the Treasury did not consider the cost of government borrowing to be relevant when making financing decisions on PFI deals, and that the value for money assessment favoured off-balance sheet solutions, which gave the illusion of lower public borrowing. The Treasury now says that the correct private finance model should be chosen for projects and that financing decisions should not be conditional on achieving off balance sheet classification. However, the Treasury has yet to identify the types of financing model it will support for various project types, such as energy, transport, or communication. Doing so will allow public bodies to be clearer on how they might deliver infrastructure and encourage investor participation, drive competition, and improve value for money. recommendation To maximise the chances of delivering value for money, the Treasury should evaluate the costs and benefits of alternate financing models, including the different costs of borrowing in the public and private sectors, to identify a preferred model for different types of infrastructure.
Government Response Summary
The government claims the recommendation is implemented, stating that the Treasury already evaluates costs and benefits of alternative financing models on a case-by-case basis using the Green Book to ensure value for money.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Recommendation implemented The government’s 10 Year Infrastructure Strategy sets out several of the main basic models available to deploy private finance into projects, many of which have been and continue to be highly successful in delivering infrastructure investment. In general, while some model archetypes might be suitable for different markets or different asset types, the selection of a financing model will be highly dependent on the specifics of a given project (e.g. the risk profile, maturity of technology, and so on). The Treasury's preferred model for any type of infrastructure project is the one that offers the best value for money, and it appraises proposals on a case-by-case basis using the Green Book. Contracting authorities should design their model with suitable provisions and appropriate risk transfer based on the specific project at hand ensuring value for money. This means that the appropriate model will often be a bespoke version of an existing basic model. NISTA provides advice and guidance to contracting authorities, and the Treasury teams and NISTA work together to implement the 10 Year Infrastructure Strategy including through considering how private finance can deliver the government’s infrastructure priorities. The Treasury evaluates the costs and benefits of alternative options – including financing models – as part of the Business Case process to identify the preferred model for each project and to ensure value for money is achieved for each infrastructure investment.