The Commons Treasury Committee has launched a stinging attack on the private finance initiative and claimed it offered taxpayers poor value for money.
The Committee report published yesterday warned the long-term costs of PFI deals were now significantly higher than conventional Government borrowing and it urged ministers to use them “as sparingly as possible” until new rules are in place.
“We ask the government to give further consideration before proceeding with the procurement, in its present form, of the Royal Liverpool and Broadgreen Hospital,” says the report.
The call is a serious blow to Carillion and Interserve, which last month were named as the two final bidders for the contract to build the Royal Liverpool.
MPs said that higher borrowing costs since the credit crisis meant PFI projects were an “extremely inefficient” method of financing.
According to the report, the average cost of capital for a PFI project is more than 8%, double the long term government bond rate.
They concluded that this extra cost was not being offset by savings and benefits in other areas of PFI projects.
Due to the financing costs involved, it said paying off a £1bn debt incurred through PFI cost the taxpayer equivalent to a direct government debt of £1.7bn.
The Treasury will respond to the MPs’ report by around October.
The CBI said the government needed to decide how PFI would develop in the future as investors needed certainty and the economy badly needed private investment.