This is where it useful to use a model of hospital costs and then to plug in the public and private costs of capital to see whether the capital cost of PFI projects is likely to be higher or lower than a public sector comparator (PSC).
This is what is done in chapter 4. The model is one that was used by the consulting firm Arthur Andersen in their study in the year 2000 for the UK Treasury. The model turns out to have been a reasonably realistic one in so far as the ratio of capital to non-clinical operating costs in the model matches that of real-life hospitals.
However, in their comparison, Andersen made a major error, namely using unrealistic costs of capital. This study uses actual costs of capital. As a result, over the life of a hospital, the PFI capital cost turns out to be very much higher than the capital cost of a hospital financed by the public sector. This is because the real cost of capital of the private sector (at 10% pa) is more than double that (4.3% pa) of the public sector, as discussed in chapter 4.2
What chapter 4 does next is to plug the private sector's cost of capital into the model and then re-run the same model with the public sector's cost of capital. The PFI cost turns out to be two-thirds higher than that of the publicly-financed. To put this another way, a comparison of the two reveals that in order to provide value for money, the construction cost of the PFI alternative has to be about 40% lower than that of a publicly-financed hospital. This is the result of the capital cost of the private sector being more than twice that of the public sector.