3.60 Discussion of the role of private finance in PFI projects must take into account the benefits which it brings to PFI projects, outlined above, and it should also ensure that the costs of securing finance from both public and private sources are assessed on a consistent basis. A balanced approach to consideration of the costs and benefits of private finance is essential for developing future policy.
3.61 The cost of private sector finance in PFI is often cited as greater than the cost of funds available through public finance. A simple comparison of the combined returns on debt and equity earned by the private sector with the non-risk rate on gilts would show that the cost of public debt was lower, but this single cost comparison does not adequately capture the different methods of costing for risk in the public and private sector, nor does it reflect the value for money benefits which whole-life costing and appropriate risk-sharing in PFI bring to projects. There is a cost to the Government's use of private finance, involving the extra cost of the private sector securing funds in the market, but a great part of the difference between the cost of public and private finance is caused by a different approach to evaluating risk.