Chancellor George Osborne has announced a "fundamental reassessment" of the Government's controversial Private Finance Initiative (PFI), with the aim of cutting costs and improving transparency.
The review will aim to create a new model for using private-sector expertise to deliver public assets and services at a lower cost to the taxpayer, said the Treasury.
PFI was introduced under John Major's administration in 1992 and was expanded dramatically by Labour as a means of enabling private investors to take on the financing, construction and operation of public-sector infrastructure projects.
However the scheme has come under harsh criticism over cost, with taxpayers facing escalating bills over the term of PFI contracts, which typically last for decades.
A recent report by the Commons Treasury Committee put the cost of capital for a typical PFI project at 8% - double the long-term government gilt rate of around 4%. Paying off a PFI debt of £1 billion could cost taxpayers the same as paying off a direct government debt of £1.7 billion, said the committee.
About 800 PFI contracts are in operation, with a capital value of around £64 billion. Some £267 billion in repayments are due to be made to private companies over the coming 50 years.
The coalition Government has continued to use PFI but has announced a number of measures to improve cost-effectiveness and transparency, such as abolishing PFI credits in last year's spending review and including PFI liabilities in the Government's published accounts.
Mr Osborne said: "We want a new delivery model which draws on private-sector innovation, but at a lower cost to the taxpayer and with better value for public services."
The Treasury said the review will create a model for private involvement in public-sector projects which is cheaper than PFI, accesses a wider range of financing sources and strikes a better balance of risk between the private and public sectors.
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Hereford MP Jesse Norman, who founded a campaign to win rebates for the taxpayer on PFI deals, said: "The Government has already taken important steps to tighten up existing PFI contracts, and £1.5 billion in projected savings have so far been announced. But this clears this way for a new, less expensive and more transparent and flexible approach to the private funding of public infrastructure."
