In December 2011, following the financial crash, the Treasury began consultations on reform of PFI in the light of a crisis in debt financing, or as the Treasury put it, reductions in "the appetite of bank lenders and bond investors for long term lending".43 Two factors prompted the review. The first was the collapse of the bond market as a result of a rise in the price of bonds relative to bank lending. The second factor was restricted long term bank lending following revised banking regulations (including Basel III, Solvency II and the Independent Commission on Banking).
To resolve the lack of lending, the Treasury proposed extending a model that would pass project risks to consumers through user charges (as gas, water and electricity privatisations do) and so give PFI projects access to the cheaper debt finance that they are currently denied. The proposal involves substituting the regulated asset based (RAB) model for the PFI concession model. RAB, which in the UK has been used mainly for airports, energy and social housing, involves protecting long-term lenders by passing the investment costs on to the customer via tolls or other user charges.44 This reform is the equivalent of tax-farming, a system of contracting out tax-raising powers to private bodies and allowing user charges. User charges are a regressive policy.
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43 HM Treasury. Reform of the Private Finance Initiative. London, 2011.
44 HM Treasury. National Infrastructure Plan 2011. London. 2011.