Privately financed capital in public services

Recent changes in U.K. policy, notably the retirement of the 1981 Ryrie rules, presage a substantial increase in the use of private finance for public sector projects. The most important features of the relaxations of 1989 and 1992 relate to successive modifications of the value-for-money test, notably in connection with removing the requirement for a systematic comparison with a hypothetical publicly financed project (e.g. when the private sector can be directly remunerated by user tolls); less stringent rules on leasing; and allowing private borrowing on the security of Exchequer-funded assets. The crucial issues are identified to be the extent of private finance and the implications for macroeconomic indicators; whether the hypothesized operational efficiency gains are sufficient to offset higher financing costs; whether risk is genuinely transferred to the private sector; and whether risk ought to be transferred to the private sector.