1.5 The cost of PFI bank borrowing is normally a fixed interest rate, set at the time the contract is entered into. In 2010, we reported that loan margins on recent PFI deals had increased from 1 per cent to 2.5 per cent. As a result, the cost of borrowing under PFI has risen substantially, typically increasing the financing costs by 20 to 33 per cent. These increased costs are reflected in higher monthly charges for PFI deals than those negotiated before the credit crisis. The effect has been to increase the price of a typical building project by between 6 and 7 per cent.18 The price of other projects has increased more. For example, the cost of the project to widen the M25 increased by 24 per cent following the credit crisis. Higher borrowing rates erode the value for money advantage that departments have previously attributed to PFI deals.
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18 Comptroller and Auditor General, Financing PFI projects in the credit crisis and the Treasury's response, Session 2010-11, HC 287, National Audit Office, July 2010.