The government has said it will fund the giant Euston station and Lower Thames Crossing schemes using private finance. With the Treasury mulling a broader injection of private capital into public projects, Joey Gardiner examines how ministers are going about it – and the prospects for success

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The site of the proposed HS2 station at Euston, in central London

FTF-WHITE with background

News that the government is considering restarting the regular use of private finance to pay for public infrastructure has got some in the sector excited about the possibility of private capital funding a significant pipeline of work.

But the truth is that, while PFI was cancelled, private finance has never wholly gone away. The regulated asset base (RAB) model, under which investment is secured against a private revenue stream in a market underpinned by statutory regulation, still successfully funds water and energy sector investment in the UK.

The RAB model was also behind major projects such as the successful £4.5bn Thames Tideway scheme. And, right now, the government has committed that two of the biggest and most controversial projects in the country are to be funded privately: the £10bn Lower Thames Crossing, and the huge Euston station redevelopment.

However, beyond the fact that the government has said it wants to use private capital on these schemes, relatively little is known about what is being proposed – despite the fact that these projects could set the agenda in terms of funding models for the years ahead.

The two projects, which are at very different stages and face wildly differing challenges, together say a great deal about both the benefits and the challenges of reintroducing private finance models into the UK construction market.

Well developed

The Lower Thames Crossing (LTC), a proposed 15-mile road crossing under the Thames between Thurrock and north Kent, is the further advanced of the two schemes. The project received planning consent under the Nationally Significant Infrastructure Projects regime in March, and already has contractors Balfour Beatty and Skanska engaged to build the roads north and south of the tunnel respectively.

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The planned northern tunnel entrance to the Lower Thames Crossing in Thurrock, Essex

According to a by National Highways (NH), the government’s trunk road agency, to the planning inspector that approved the scheme, there are three funding options on the table for the scheme. Firstly, full public funding; secondly, a part public-funded, part PFI model, where the government builds the riskier tunnel elements and private capital is used for the roads; and thirdly, an RAB model where a single provider would build the whole thing, and operate the existing Dartford crossing to boot.

While the Treasury said any funding decision was subject to the outcome of next month’s spending review, several commentators who have spoken to  Î¢ÃÜȦ said the RAB model is the clear favourite. The most obvious reason for this is made plain in submitted to the LTC planning inquiry: cost.

An assessment by NH submitted to the inquiry found that the part-PFI option was a full £1bn more expensive in capital terms than a public build programme, at £10.2bn. In contrast, the RAB option came out just £200m more expensive than full public funding, due to the costs of setting up the regulator, at £9.4bn.

Project: Lower Thames Crossing

Cost: Â£9-10²ú²Ô

Finance route:  Likely RAB model raised against toll revenues