According to the think-tank the Institute for Public Policy Research, the Government could have directly funded all the investment carried out under the Private Finance Initiative without breaching its own public spending policy.

The IPPR estimates the PFI will provide around £11bn of investment from 1999 to 2001 - approximately 14% of investment in the public sector. "The Treasury's new fiscal framework is entirely compatible with not having the PFI at all - the initiative is not necessary to secure prudent public finances," said Peter Robinson, the IPPR's chief economist . "The macro fiscal argument for the PFI was always weak."

The IPPR report also suggests that the small cost savings reported so far may be exaggerated as the public sector comparisons have not been calculated in the real belief that they are a viable alternative to PFI. "When they construct the public sector comparator to demonstrate value for money, they must be doing so half-heartedly because they believe that the public financing option is not open to them," said Mr Robinson. "And the private sector bidders must be in a more powerful position because they too know the PSC is a mere formality and the project will go ahead under the PFI." www.ippr.org.uk

Richard Byatt