Recommendation 2

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.