It is almost seven years since Philip Hammond, then chancellor of the Exchequer, officially abolished the private finance initiative (PFI) in England, branding the model “inflexible and overly complex”.
The Conservatives never warmed to that particular brand of public-private partnership (PPP) deals after coming to power in 2010, even though New Labour had by then used PFI to deliver more than 600 individual projects across the UK. After Hammond sent it to the knacker’s yard in November 2018, the whole idea of PPP became something of a political taboo.
But now, the Labour government’s promise of an era of national renewal is running up against the hard reality of the public finances. Despite coming to power with no particular desire to restart a big private finance programme, the government is now being forced – by a stuttering economy and empty Whitehall coffers – to look again at how to get private capital to pay up front for the infrastructure the country needs.
>> Also read: Building’s report calls for expanded public private partnerships programme
In this context, Building at the start of this year launched its Funding the Future project, an in‑depth investigation into the potential solutions for bringing in private finance to pay for public projects: what approaches are being considered, and which should be.
The project has weighed questions around the financing of economic infrastructure such as roads, stations, and water and energy infrastructure, where there is a revenue stream to pay back private finance (see Eight Recommendations, below).
However, a key focus – given both Building’s heritage and the fact that private finance for economic infrastructure has continued to flow in recent years – has been the question of a return to social infrastructure PPPs, where private finance is raised against a public revenue stream. And within that, most obviously, arises the question of PFI-like models.
Private finance is being paraded as a realistic option to pay for the enormous construction challenge of renewing the public estate, setting the country on a path to net zero, and delivering 1.5 million homes
Since the launch of Funding for the Future, the government has officially confirmed with the publication of the 10-year infrastructure strategy in June that private finance has returned. It is now being paraded as a realistic option to pay for the enormous construction challenge of renewing the public estate, setting the country on a path to net zero, and delivering 1.5 million homes.
And yet, while the government has backed models where there is a private revenue stream to pay back financing – such as with utilities – it is yet to finally confirm the way forward for publicly funded projects – with a final decision due at the autumn Budget this year.
Many questions remain, too, about the specific models and structures that will be backed – and, beyond the utility sector, the specific projects that will be judged as best placed to benefit from this renewed enthusiasm for private finance.
This report brings together and builds on the Building the Future Think Tank’s work over the year on the models that will be backed and the sectors that will be supported – and what government needs to do to make them fly.
Labour’s decision to cautiously open the door to private finance provides a real opportunity for the sector – now we need to grasp it.
Joey Gardiner, author of How Private Finance can Rebuild the UK, a Building the Future Think Tank piece of research
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
The Funding the Future advisory panel, clockwise from top left, Mace’s Mark Reynolds, Browne Jacobson’s Craig Elder, Skanska UK’s Meliha Duymaz, Agilia Infrastructure Partners’ James Stewart, Wates’s Stephen Beechey and Navigate Advisory’s Beth West
Source: How Private Finance Can Rebuild the UK
The big debate: join Building at our live event, on 2 October
The report is to be published in full at the Building the Future conference – a full day of discussions and keynote speakers that is happening on 2 October, at 155 Bishopsgate in Central London.
The agenda covers vital industry issues such as building safety, housing, sustainability, people & skills, and private finance. Joey Gardiner will be chairing a Funding the Future panel debate at the event, which will include advisory panel member Beth West while Mark Reynolds will be a keynote speaker.
To find out more about the Building the Future Conference and to book your tickets click here. Copies of the How Private Finance can Rebuild the UK report will be available to delegates.
To find the campaign on social media follow #Buildingfundfuture.
