The final report of Building’s Funding the Future campaign will call for the government to radically expand its proposed use of public private partnerships to pay for social infrastructure.
The report, entitled Funding the Future: How Private Finance can Rebuild the UK, will say an expanded programme is necessary in order to spark the investment in industry capacity needed to deliver schemes efficiently.
The research, by the Building the Future Think Tank, outlines how after almost seven years since the Conservatives abandoned the private finance initiative (PFI) this Labour government is actively looking to supplement public money with private capital.
Chancellor Rachel Reeves in the 2024 Budget rewrote definition of public debt to give her an extra £50bn of borrowing capacity to invest in capital spending, enabling her increasing capital spend this year by 10% across all departments. The move also underpins the of £725bn of funding in the 10-year infrastructure strategy announced in June.
But the report says this fiscal loosening will not come close to matching the scale of the government’s stated ambitions to renew the country’s public infrastructure or the needs of the repairs backlogs.
The Treasury’s infrastructure strategy, launched by Reeves, re-opened the door to using public private partnerships to pay for public infrastructure, including PFI-type mechanisms for infrastructure with no private revenue stream.
However, in this area it proposed limiting public private partnerships (PPPs), of which PFI is one form, to just two programmes: one for community healthcare facilities, and another for decarbonising public buildings, to be confirmed at the forthcoming Budget.
Report recommendations
The Funding the Future report, to be published later this month, will conclude that the market for PPPs is currently “hibernating” in the UK, and that the government needs to set a stronger vision for it if it wants the market to “wake up” and deliver projects.
This vision should include, it finds, a “significantly more ambitious” programme of PPPs in the social infrastructure space, and it calls on government to additionally consider programmes for key worker accommodation, primary schools, and other healthcare facilities, potentially including hospitals.
Without a greater pipeline of projects, it finds, there will be little incentive for the sector to rebuild capacity, meaning the jobs which do come to market will suffer from limited competition, and participants will have no ability to hone and improve delivery through learning and repetition.
The government should be clear about the level of ambition if it wants to ‘wake up’ the sector and thereby deliver best value
Funding the Future report
The report says: “The government should be clear about the level of ambition if it wants to ‘wake up’ the sector and thereby deliver best value.”
Additionally, the report calls on the government to task the newly created National Infrastructure and Service Transformation Authority (NISTA) with supporting the sector in the implementation of a clear private finance delivery plan, among eight separate recommendations (see below).
It also calls on the government to quickly decide on the financial model that it will support for social infrastructure PPPs, with the Welsh Government’s Mutual Investment Model seen as the most helpful archetype for schemes that will not have a future private sector income flow.
Chloe McCulloch, Building’s editor, said: “This report comes at a crucial time for the construction industry and for this government with its ambitious pledges to get Britain building again. If used smartly, private finance can help modernise our ageing public estate, accelerate the energy transition and support the journey to net zero.
“There has been plenty of talk in government about private finance, but little information about how financing models could be used on projects. The risk is that by not acting decisively we miss a golden opportunity to renew our infrastructure. Our report calls for the government to set out an ambitious vision to leverage private finance for the public good.”
As this timely report concludes, a new, modern-day, forward thinking partnership model must be developed
Mark Reyonlds, Funding the Future adviser
The report is the culmination of six months of work by Building since launching the Funding the Future campaign, which was designed to examine fresh ways of attracting and using finance to boost construction projects at a time of constrained public finances.
In forming the report’s conclusions, Building has drawn both on its research and on the expertise of the Funding the Future advisory panel, made up of senior figures from the world of construction, finance and law with experience of PPPs.
The panel comprises Mark Reynolds, chair of Mace and co-chair of the Construction Leadership Council, Craig Elder, partner in law firm Browne Jacobson, Meliha Duymaz, Skanska UK as chief financial officer and James Stewart, executive vice-president Agilia Infrastructure Partners’, Stephen Beechey, group public sector director at Wates, and Beth West, former interim chief executive at East West Rail.
Reflecting on the work of the Funding the Future panel and the final report Reynolds said: ”The UK must invest in new homes and infrastructure to stimulate growth, improve productivity, and develop our economy. The government has no other option than to encourage private investors to help fund these critical projects. As this timely report concludes, a new, modern-day, forward thinking partnership model must be developed.
”We call on the chancellor and her team to work with industry to develop private financing proposals urgently so that we can act quickly and progress at pace.”
West said: “Over a year into the current Parliament, the report’s recommendations should be taken up by the government immediately so that all parties can begin to gear up and deliver the needed social and economic infrastructure that the country so desperately needs.”
Eight strategic recommendations for government
1. Set out a stronger vision for how private finance will be used, backed by a delivery plan and the appropriate incentives to trigger action
2. Set a more ambitious programme of social infrastructure PPPs, in order to wake up the sector from its current hibernation
3. Set an effective institutional framework for rolling out the vision and delivering targeted sector support, to ensure the strategy the government has set is actually implemented
4. Move quickly to clarify which funding structures or models will be promoted by the government, and put necessary guidance and support in place. Welsh MIM should be strongly considered as the basis for a private finance model where there is no private sector income
5. Rapidly bolster the new infrastructure pipeline to make it an effective tool for potential private investor in UK infrastructure
6. Use rigorous criteria to focus where programmes of private finance in social infrastructure should go to ensure value for money
7. Move quickly to implement infrastructure strategy recommendations to bolster use of private finance for economic development
8. Use the autumn Budget to announce a programme of “amortised grant” funding for social housing providers, to efficiently leverage in the maximum volume of private capital to pay for new affordable homes
Source: How Private Finance Can Rebuild the UK
