The taxpayer is to lend large sums – potentially billions of pounds – to private finance initiative projects in an attempt to rescue a clutch of deals that risk collapsing for lack of bank lending.

A new unit in the Treasury, run as a private limited company to get round Treasury lending rules, will lend to projects at market rates alongside the banks. It will be staffed initially by up to 15 or so bankers with project finance experience.

Treasury officials expect lending in the coming year to run at perhaps £1bn to £2bn. But that could rise if the debt markets do not recover and the government remains determined to get its roads, prisons, schools, waste and defence projects built during the recession.

Financial Times