§ Ms DrownTo ask the Secretary of State for Health for major capital projects over £50 million in his Department, at what discount rate the value for money test would recommend that(a) a publicly funded project became a PH scheme and (b) a PFI project became publicly funded. [15404]
§ Mr. HuttonThe decision on whether a capital investment project should test for private finance in the first place is taken early in the process, at the outline business case stage. Decisions will be based on the nature and complexity of the project, which in turn impact upon value for money factors such as the number and capability of bidders likely to be interested and the past track record of similar projects with regard to private finance initiative. Being a set constant the discount rate is not a relevant factor and is therefore not considered.
A single discount rate for all Government Departments is set by Her Majesty's Treasury. National health service trusts are therefore not required to apply different: discount rates as part of their sensitivity tests in the full business case on assessing at what point a PFI option does not demonstrate value for money when compared to the public sector comparator.
It is not possible to set rates that would determine a switching value ahead of the priced bid as the exact rate will be determined by the rate of spend, exact timings of the cash flows, length of contract period and interest rates applicable at the time contracts are signed. As a general rule, compared to the current 6 per cent. rate, an increase makes revenue payments more attractive, a lower rate favours up-front capital investment.