Proposal for UK Capital to handle PFI schemes now being put to government departments.
Industrialist Sir Malcolm Bates has won the backing of the Treasury for a public-private vehicle to improve government handling of private finance initiative projects.

Sir Malcolm, chairman of Pearl Assurance and London Transport, recommended the creation of such a body, to be called UK Capital, in March. The idea is that it will advise departments and invest in projects, and that it will be launched in July.

Sir Malcolm won support from Treasury officials at talks in late May, and discussions are now proceeding with other departments that commission PFI projects.

Senior Whitehall sources said there was a 60-40 chance that UK Capital would be created but added that winning over some departments might not be easy.

The sources said officials at the Ministry of Defence and Department of Health in-house private finance units might resent interference from an outside body – particularly one with a stake in their projects.

It has been suggested that UK Capital will have up to £100m to invest to give the Treasury more control over deals where it believes the private sector might be making too much profit.

Another idea, under which UK Capital would arrange funding for PFI projects on behalf of private sector consortia, has been scrapped.

It has yet to be settled who will head UK Capital, as Adrian Montague, the chief executive of the Treasury's PFI advisory taskforce, is due to leave next month. Industry sources said the enhanced role and bigger team at UK Capital might tempt him to stay.

Treasury backing is crucial for Sir Malcolm's plan, as it has stirred up strong opposition from bankers.

When told that the Treasury was backing the plan, one banker said: "We'd all been rather hoping that UK Capital had been killed off.

"There is no requirement for government intervention in a market that is already over-liquid. There is no shortage of private cash for investment in PFI projects. There seems to be a new fund set up every time you open up a newspaper.

"The only way this could work would be for it to help with the lack of development funding – for feasibility studies and the payment of advisers – at local authority level, where councils can often not afford to get PFI schemes off the ground.

"In theory, there may be some justification for that. But, apart from that, I can't see any other reason for this plan to happen."

Bankers had hoped that the delay in responding to Sir Malcolm's suggestion meant that it had been left to die. But Whitehall sources said the Treasury was enthusiastic about the idea and had spent months developing the concept.