By Lucy Phillips
9 December 2010
MPs have criticised the Treasury for allowing the costs of Private Finance Initiative projects to escalate by £1bn during the credit crisis.
A report published today by the Public Accounts Committee condemns the Treasury for failing to negotiate down bank loans for PFI projects during the 2008/09 financial crisis. At a time when the government was providing ‘unprecedented’ support to the banking system, the banks were increasing the cost of financing PFI projects by up to a third. An extra £1bn of debt was passed on to the taxpayer, the MPs say.
PAC chair Margaret Hodge said: ‘We recognise that market confidence was helped by the Treasury setting up its own unit to lend public money on commercial terms where private finance was not available. But the Treasury could have done more. It did not use its negotiating position to press the banks to loan to infrastructure projects at lower rates.
‘It also did not explore the possibility of alternative and cheaper sources of finance to reduce reliance on expensive bank financing. It is imperative that it does so now.’
The report Financing PFI projects in the credit crisis and the Treasury’s response also reveals that the high interest charges to which new PFI projects were tied into during the credit crisis will be locked in for up to 30 years, even when the project is up and running and posing less of a risk to lenders.
Hodge added: ‘The Treasury must find ways to reduce these high bank financing costs; and to monitor market conditions to help departments claw back as much in savings as possible if and when projects signed in 2009 are refinanced.’
