Treasury Infrastructure Finance unit helped kickstart PFI in 2009 but it will cost public sector up to another £1bn over next 30 years

The Labour government committed to spending up to an extra £1bn on PFI schemes last year with its attempt to kickstart the private financing of infrastructure projects, government auditors have found.

The National Audit Office said that the Treasury Infrastructure Finance Unit, set up in 2009 in response to a collapse in funding for PFI schemes, was successful in reactivating the lender market for PFI and were value for money “in the short term”.

However, it found that by giving priority to closing deals at the current market rates even if it meant the public sector paid more and less risk was taken on by banks, it may have committed the public sector to between £500m and £1bn of extra expenditure over the next 30 years.

No sizable contracts were let in 2008, but following the setting up of TIFU and the government’s changed criteria, 35 projects were signed, including the £6.2bn deal to widen the M25.

The NAO recommended a project-by-project review of the forward programme to apply more exacting and narrower criteria than applied to projects at the height of the crisis.

Labour MP Margaret Hodge, chair of the Committee of Public Accounts, said she was concerned about the extra costs.

She said: “We are locked into these costs for generations to come and when my Committee meets to take evidence from the Treasury on the basis of this report we will want to know whether they understood the cost implications of the decisions they made during the credit crisis. “

Amyas Morse, head of the National Audit Office, said: “During 2009, the cost of finance built into the PFI programmes at that time was value for money, but there is no guarantee that it will remain that way. Now that the market is providing finance again, a project by project review should be carried out using stricter criteria, to establish the most appropriate funding methods.”