The 2008 credit crisis had an enormous impact on the Government’s public infrastructure programme. Severe restrictions on bank lending at that time meant no sizeable Private Finance Initiative (PFI) contracts could be let. This affected the viability of a large number of infrastructure projects, including school and road building schemes, with a total investment value of over £13 billion. The Treasury’s response was to make project finance available by lending public money on the same terms as the banks. This approach reflected a fear that doing nothing would slow the flow of new PFI contracts, jeopardising the economic stimulus that would be generated by new infrastructure.
The appropriate mix of financing sources for future project contracts, including public and private finance, is an issue that needs serious reconsideration. On the basis of a Report by the Comptroller and Auditor General, we examined the Treasury on its response to financing PFI projects in the credit crisis.