(iv) The Government's actual costs of finance are well known to be lower than those of the private sector. In assessing value for money in this project, the Treasury used a discount rate of 6 per cent to compare the deal, adjusted for risk, with a public sector alternative. That 6 per cent figure implies that public finance would cost more than the actual private sector cost of finance in this project, including allowance for risk. Yet the Treasury suggested to us that, taking account of project risks, there might be no difference between the costs of private finance and public finance. The Treasury should ensure that the appraisal of PFI projects adopts a consistent and defensible approach to the cost of finance.
(v) If it were indeed true that the risk-adjusted cost of finance for a conventional public project did not differ from that of the corresponding PFI deal, then decisions on whether or not to go for a PFI deal could in principle ignore apparent differences in financing costs and turn instead on differences in the other factors. Several conditions would however need to be satisfied first:
► that the market is always given enough information to provide a basis for a thorough assessment of the risk;
► that the PFI procurement, including financing, is fully competitive, so that the price fairly reflects the risk;
► that the financing instruments used in PFI do not inherently involve extra costs, as the C&AG's Report, Channel Tunnel Rail Link (HC 302, Session 2001-02) suggested that they might (paragraph 2.19 and Appendix 5).
These conditions will not necessarily be satisfied in every case.