The Review admits "…windfall gains on projects, through the refinancing of debt and the sale of equity investment to third parties…..has led to concerns about the value for money of projects" (ibid). Increasing equity investment in PF2 projects is likely to increase public sector costs because equity investment costs more than borrowing. Equity investors expect an annual return of 12%-15% compared to the 6%-7% annual return on lending by banks and other financial institutions.
The government argues that any increased costs will be offset by the SPC having more equity and thus being perceived to have lower risks. It also hopes that if other investors take equity stakes this will bring "…new money into the sector and so enabling more projects to be financed in the long run" (ibid).
This section has explained why the sale of equity in SPCs and the growth of a secondary market have important negative consequences for public services.
PF2 is essentially a rebranding of PFI. It does nothing to address the profiteering from the sale of equity in current PFI projects. Public sector minority equity stakes in future PF2 projects are likely to have a marginal effect on windfall gains and entraps local authorities, the NHS and other public sector organisations in playing the secondary market.