Three is the magic number. This week’s Infrastructure Plan completed a triumvirate of public policy documents designed to cut public spending and improve cost efficiencies. Following the Emergency Budget and the Comprehensive Spending Review however, we had to wait until the Infrastructure Plan to get any clarity on the future of public/private partnerships and I say clarity in a loose sense here.
We know the Chancellor is no fan of the existing PFI scheme but he has been non-committal when it comes down to deciding its fate. Pre-CSR nerves and uncertainty have not quite disappeared but the message is encouraging. It is clear that some form of public private partnership is required to deliver the infrastructure projects we need, so it is unlikely that PFI will be killed off in its entirety. It is more likely that new models or variations on PFI as we know it will emerge.
We also know that Tory MP Philip Hammond is investigating alternative models to PFI but he has been very quiet. Is he going to come up with new workable models or will it be a case of an old product re-packaged?
Meanwhile the Chancellor has acknowledged that greater private sector investment is required and he envisages increasing capital spending by around £2.3 billion a year by 2014-15 to fund capital projects of long-term high value. He also gave the green light to a long list of projects and confirmed others would be deferred or axed, including a new 1,500-place prison and seven waste projects.
This is a big opportunity for the private sector to shape the funding model. Investors can also influence the procurement of deals in terms of size, scope and risk allocation. It’s an investor’s market. Will the private sector fight for improved terms on financing - undermining one of the criticisms of existing PFI deals?
All of this has a huge knock-on effect locally. With the removal of PFI credits the impact on local authorities is enormous. It represents a major shift in how local project funding is planned and decentralises the decision-making on infrastructure, which will undoubtedly lead to a bun fight over which projects take priority.
The capital expenditure versus services conundrum will ring through town halls across the UK as planners are faced with reducing capital on one hand but making service promises on the other. This will surely put them at the mercy of private investors. Their alternative is to raise funds from the sale of buildings, land and other assets which has merit but may be an expensive way forward.
While the Infrastructure Plan was in itself ambitious and optimistic, the devil is always in the detail. Private investors are hovering like angels to help underwrite essential project costs and that’s a good thing both locally and nationally. We can only hope the Chancellor sticks to his guns on commitment to infrastructure deals and is not firing blanks.
Shapna Roy is head of projects at the law firm Wedlake Bell
