Whitehall sources say the plan for a "Government Investment Bank" that would buy equity stakes in ventures or provide temporary assistance for projects having difficulty raising funds is gaining support.
This role for the investment bank has found more favour with the private sector than an earlier idea by Treasury PFI taskforce head Adrian Montague. His idea was for an agency to arrange funding, with contractors borrowing at low interest rates.
The latest proposal is understood to be backed by Sir Malcolm Bates, the Pearl Assurance chief who is due to report this month on the future of the Treasury's PFI taskforce.
If, as expected, he recommends that the agency is created, it could be operating by the second half of the year. Private soundings on the proposed bank have already taken place, so it is unlikely that further consultation will be carried out, Whitehall sources said. If the bank plan is recommended by Sir Malcolm, its £50m-100m funding could be confirmed in the budget.
Alan Milburn, the Treasury minister responsible for the PFI, said on Tuesday that the government intended to take action to make PFI deals easier to complete.
He said: "We are now looking at how to streamline the process of putting a PFI deal together." The Treasury is planning to publish a guidance paper on standard model PFI clauses by the end of February. In March,- it will publish guidance on PFI accounting treatment.
Sources said the bank in its new form could also provide interim financing for a project on site while the private sector completes its own funding arrangements. Or it could arrange funding for a project that has yet to find a private sector consortium to build it and then hand over the funding for the project once a winning team was picked. In either case, the bank would retain its stake in the project.
However, bankers, who objected to the first proposal because they viewed it as interference in the market, are still sceptical about the bank, even in its modified form.
One said: "Why does the government feel the need to interfere? This will only cause another layer of bureaucracy. What's the justification for it?" Another said he believed the Government Investment Bank would get "right royally screwed" if it started to take equity stakes in projects. This is because it would not have the discipline of private sector firms to ensure that it got value for money.
Another banker said the recent expression of interest in major PFI equity stakes by firms such as Japanese investor Numura would make the government bank "odd and frankly superfluous".